By Mark Olsen, Managing Director at PlanPILOT
Ask a plan committee member what they did at the last investment review meeting, and you’ll likely hear some version of the same story: they pored over performance reports, debated a handful of funds, and walked away feeling like the lineup is solid. It’s a familiar ritual, but also may be the wrong conversation.
In our experience, the size and complexity of a retirement plan’s investment menu is one of the most underexamined levers in plan design. Plan sponsors who build menus around fund ratings and committee preferences often end up with options that are technically defensible but practically confusing. When participants are confused, they disengage. That’s a problem no fund rating can fix.
The better question isn’t whether the funds are good; it’s whether the menu itself is designed to help people make good decisions. That should be the focus of the plan committee.
More Options Don’t Mean Better Outcomes
There’s a persistent belief in retirement plan management that more choice signals more value. If the committee can offer a broad fund lineup (e.g., domestic equity, international equity, sector funds, alternative strategies), it looks thorough, complete and diversified. Sophisticated, even.
Research tells a different story. Studies on decision-making consistently show that when people face too many options, they don’t choose more carefully. They freeze up, defer, or default. In a retirement plan context, that often means sticking with a poorly suited default allocation, failing to rebalance, or avoiding enrollment altogether.
This phenomenon is sometimes called “choice overload,” and it has real consequences for participants. A 401(k) participant who can’t quickly identify which funds belong in their portfolio is less likely to engage meaningfully with the plan. As a result, lower engagement tends to translate into lower savings rates and worse retirement outcomes.
What “Streamlined” Actually Means
Simplifying an investment menu doesn’t mean stripping out useful options. It means organizing the menu with participant behavior in mind—building a clear hierarchy that guides decision-making without requiring expertise.
A well-structured menu typically works in tiers:
- First, have a qualified default investment alternative (QDIA). This is usually a target-date fund series that serves participants who want a hands-off, age-appropriate option.
- Then a core tier of broad, low-cost index funds covering major asset classes: domestic equity, international equity, and fixed income.
- Finally, a supplemental tier for participants who want more specialized options: active strategies, real assets, lifetime income, or additional diversification options.
This kind of structure doesn’t limit participants; it orients them. Someone with no investment background can find a reasonable path without feeling lost. Others who want to customize have the tools to do so. Both groups are better served than they would be by a flat list of 30 funds with no clear organizing logic.
The Fiduciary Case for Simplicity
Beyond participant outcomes, there’s a clear governance incentive to menu design that plan sponsors sometimes overlook. A streamlined, well-documented lineup is easier to monitor, easier to explain, and a more effective defense.
When a committee can articulate why each fund is on the menu, what role it plays, how it fits the structure, and what criteria would trigger its removal, the committee is demonstrating procedural prudence. That’s a plan that can withstand a Department of Labor audit or a participant complaint without scrambling to reconstruct the reasoning.
Contrast that with a plan that has grown organically over years of incremental additions. Stating “It was a good idea at the time” just isn’t going to persuade an auditor. A fund added because a committee member liked its recent performance, another added to appease a vendor, a third retained out of inertia, are not components of a well-designed plan and procedure.
That kind of menu is hard to justify and harder to manage. The documentation doesn’t reflect intentional design because there wasn’t any.
A defined Investment Policy Statement (IPS) that specifies the purpose and criteria for each tier gives committees a governance framework that holds up over time, not just during the next quarterly review.
How Many Funds Is Too Many?
There’s no universal right answer, but the federal Thrift Savings Plan (one of the largest defined contribution plans in the country) offers a useful reference point on the low end. It operates with a small number of broad index funds and a lifecycle fund series. Participation is high, internal investments costs are low and the choices are limited but effective.
For most institutional plans, a menu of 15 to 20 options (tops) is generally sufficient to meet the needs of a diverse workforce. Beyond that, additional funds tend to create complexity without adding meaningful diversification. The marginal participant benefit is low, the governance burden is not. Think of a restaurant menu; the more entree choices, the longer it takes a dining customer to decide what to order.
One area that deserves more attention is fixed income (bonds). Many plans emphasize equity diversification while leaving the fixed income side underdeveloped. Often, we see one broad-based bond market index fund and perhaps one other fund or nothing else.
Participants who are closer to retirement or simply more conservative in their investing approach need adequate fixed income options to suit their own objectives. At minimum, a stable value or money market fund, an intermediate-term bond fund, and an international bond option along with a total bond market fund would cover most situations.
Starting the Redesign Conversation
For committees that want to revisit their menu structure, the first step is to separate the structural question from the fund-selection question. Before asking which funds to include, ask what the menu is supposed to do, who it’s serving, what decisions it needs to support, and how clearly it communicates those options to someone without a financial background.
From there, the conversation shifts to whether the current menu answers those questions, and where it falls short. That’s a more productive review than debating whether a given fund outperformed its benchmark last year.
At PlanPILOT, we work with plan sponsors to evaluate not just fund performance but the overall architecture of the investment menu. The goal is a lineup that works for participants as they actually are (not as we wish they were), and that holds up to the scrutiny that comes with fiduciary responsibility.
Is Your Investment Menu Working for Your Participants?
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To learn more about how we can help with fiduciary oversight and improving the effectiveness of your benefits program, reach out to us at (312) 973-4913 or send an email to mark.olsen@PlanPILOT.com to learn more about how we can customize our services and your plan to fit your unique needs.
About Mark
Mark Olsen is the managing director at PlanPILOT, an independent retirement plan consulting firm headquartered in Chicago. PlanPILOT delivers comprehensive retirement plan advisory services to 401(k), 403(b), and 457 plan sponsors. His specialties include plan governance, investment searches, investment monitoring, and plan oversight. Mark is recognized as a leader in the industry and speaks at national conferences, including those organized by Pensions & Investments, and CUPA-HR.
