As we look toward 2025 and beyond, three pivotal trends are set to redefine the DC plan space:

• the dual focus on low-cost options and active fixed income
• the integration of alternative and real assets in target date funds (TDFs)
• the rise of hybrid default solutions that combine target date funds with guaranteed income

1. Balancing low-cost options with active fixed income management

The pursuit of low-cost investment options has been a dominant theme in the DC plan industry, driven by the desire to maximize returns by minimizing fees. Index funds have become possibly the most popular choice for their cost-effectiveness and perception of “safety.” However, the fixed income landscape presents unique challenges that passive strategies may not fully address. As interest rates fluctuate, active fixed income management offers the potential to navigate these complexities, providing opportunities for excess returns and risk mitigation. 

Passive fixed income strategies often miss opportunities that active managers can exploit. With 80% of core and core plus managers outperforming the Bloomberg U.S. Aggregate Index over the past five years, the value of active management in fixed income becomes increasingly apparent, prompting plan sponsors to reconsider their fund selections, especially as interest rates remain elevated. 

2. The growing role of alternative and real assets in target date funds

Traditionally focused on a mix of equities and fixed income, TDFs are now incorporating alternative and real assets to enhance returns and diversification. These assets—including private equity, real estate and commodities—provide unique return profiles and inflation protection, making them attractive additions to TDFs.

For example, J.P. Morgan’s research underscores the benefits of including real estate in TDFs, noting that portfolios with direct real estate exposure have historically delivered higher returns with lower volatility. As the macroeconomic environment shifts, the strategic inclusion of alternative assets can help participants seek smoother return patterns and better long-term outcomes.

We believe we’ll see further innovation in this area, especially when one considers the potential for improved investment results that becomes increasingly important for a participant’s retirement readiness.

3. The emergence of hybrid default solutions—aka TDFs with guaranteed income

As retirees face the challenge of transitioning from saving to spending, the demand for retirement income solutions is growing. Hybrid default solutions, which combine target date funds with guaranteed income products, are gaining traction as a way to address this need. These solutions offer a seamless transition from accumulation to decumulation, providing participants with a steady income stream in retirement.

These hybrid solutions allow participants to allocate a portion of their savings to secure an annuity-backed paycheck for life, addressing concerns about longevity and market risks. However, these products are not a one-size-fits-all solution and must emphasize personalization, cost transparency, flexibility and control in order to be effective solutions for participants.

Conclusions: A new era for DC plans

The future of defined contribution plans is being shaped by these emerging trends, each offering unique benefits to plan participants and sponsors. By embracing low-cost options with active fixed income, incorporating alternative and real assets into target date funds, and adopting hybrid default solutions, the DC plan industry can better meet the evolving needs of participants.

As we move into 2025 and beyond, these trends will continue to influence the design and delivery of retirement savings solutions, ultimately enhancing the financial security of millions of individuals.

As plan sponsors and participants navigate this evolving landscape, our focus will remain on providing innovative solutions that address the complexities of retirement planning. By staying ahead of these trends, DC plans can continue to play a vital role in helping individuals achieve their retirement goals.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be a recommendation for any specific investment product, strategy, plan feature or other purposes. By receiving this communication you agree with the intended purpose described above. Any examples used in this material are generic, hypothetical and for illustration purposes only. None of J.P. Morgan Asset Management, its affiliates or representatives is suggesting that the recipient or any other person take a specific course of action or any action at all. Communications such as this are not impartial and are provided in connection with the advertising and marketing of products and services. Prior to making any investment or financial decisions, you should seek individualized advice from your personal financial, legal, tax and other financial professionals that take into account all of the particular facts and circumstances of your own situation.

Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve.

Target Date Funds (TDFs) may suffer investment losses, including near and following retirement. There is no guarantee that a TDF will provide adequate retirement income.

The JPMorgan SmartRetirement Funds are TDFs with the target date being the approximate date when investors plan to retire. Generally, the asset allocation of each Fund will change on an annual basis with the asset allocation becoming more conservative as the Fund nears the target retirement date. The principal value of the Fund(s) is not guaranteed at any time, including at the target date.

TDFs are not a complete retirement program and may not provide sufficient retirement income. There may be additional fees or expenses associated with investing in a Fund of Funds strategy. Asset allocation does not guarantee investment returns and does not eliminate the risk of loss.

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