In the ever-evolving landscape of defined contribution retirement plans, one of the most consequential and nuanced responsibilities of plan sponsors and fiduciary committees is the construction of the core investment menu. The design of these menus holds significant implications—not only for regulatory compliance and plan operations—but more importantly, for participant outcomes.

While there is no single best approach to menu construction, recent conversations in the industry reflect two converging realities. First, plan sponsors continue to streamline options, often limiting menus to fewer than 10–14 choices. Second, the diversity of participant needs—particularly across different life stages—may make it difficult for a simplified lineup to effectively serve everyone.

This article explores key influences on menu design and offers a framework for plan sponsors and industry professionals to consider as they build menus that are effective, responsive, and participant-centered.

The Tradeoff Between Simplicity and Customization

A primary theme in today’s DC plan design is the tension between the simplicity of streamlined menus and the customization needed to meet a heterogeneous workforce’s needs. While streamlined menus may promote participation and ease administrative burdens, their simplicity may come at a cost. For late-career workers and retirees, current lineups may lack sufficient diversification or asset classes aligned with wealth preservation and income generation. The uniformity of some target date funds and core menus may not reflect the complexity of retirement decision-making. As retirement nears, participants often seek greater control, predictability, and income-focused solutions—needs that a one-size-fits-all menu may not satisfy.

A Tiered Approach Grounded in Behavioral Finance

Behavioral economics has long informed DC plan design. Past research has shown that choice overload can lead to participant inertia—underscoring the rationale for simpler menus. To balance participant autonomy with decision support, a recent DCIIA white paper noted that some plans may follow a three-tiered menu structure:

• Tier 1: Do It for Me – Default solutions like target date funds serve participants who prefer professional management or make no active investment decisions.
•  Tier 2: Help Me Do It – A core menu of diversified funds supports those who want to build portfolios with some guidance.
•  Tier 3: Do It Myself – A self-directed brokerage window offers broader flexibility for confident investors seeking more control.

This tiered framework recognizes varying levels of participant engagement and expertise, yet implementing it well requires thoughtful curation. For example, adding Tier 3 choices should be accompanied by safeguards to prevent misuse and support informed decision-making.

Five Key Influences on Menu Construction

The aforementioned paper, Investment Menu Influences in DC Plans, considers five foundational influences that shape plan design decisions:

1. Participant Behavior and Demographics
Committees generally assess how participants interact with investment options on a regular basis. Key questions may include, “Are most participants defaulting into the QDIA? Are certain cohorts—such as older employees—underutilizing core options?” A data-driven understanding of participant behaviors and demographics can guide more responsive menu construction and communications.

2. Fiduciary Committee Beliefs and Governance
Fiduciary duty demands diligence, documentation, and a commitment to participants’ interests. Best practices for committees could include aligning their investment beliefs with participant needs, engaging in regular training, and planning for continuity through leadership changes. Menu decisions are optimally guided by a thoughtful investment policy statement and a consistent and well-documented review process.

3. Regulatory and Legal Context
Plan sponsors must navigate an evolving regulatory environment, including provisions of the SECURE Act 2.0 of 2022 and Department of Labor guidance. Safe harbors like QDIAs offer protections but may impose constraints. Committees should stay informed and work with legal and other advisers to ensure compliance while preserving flexibility where possible.

4. Providers, Advisers, and Technology
The role of recordkeepers, consultants, and asset managers cannot be overstated. These providers influence not only which options are available but how they are presented to participants. Menu design should ideally account for platform capabilities, potential conflicts of interest, and the quality of participant-facing tools. Technology—especially regarding managed accounts, retirement income tools, and lifetime income options—is increasingly shaping the participant experience.

5. Capital Markets and Economic Conditions
Volatility, inflation, and interest rate trends affect asset class performance and menu composition. Committees should consider reviewing menu structure in the context of current market conditions, using modern portfolio theory and asset allocation principles to maintain risk-appropriate and diversified options.

Exploring the Edges of the Core Menu

A streamlined core menu may be operationally efficient, but it can miss opportunities to meet targeted participant needs. For example, plan sponsors may want to consider:

•  Broader fixed income and inflation-protected assets for those nearing retirement;
•  Diversifiers such as private equity, real assets, or hedge funds and their potential role in selective parts of the plan;
•  Lifetime-income products or managed payout options as more participants remain in-plan after retirement;
•  Personalization tools that help participants make informed decisions without dramatically expanding the visible menu.

Importantly, the value of diversification within asset classes, rather than expanding the number of asset classes themselves, is a growing focus. This nuanced approach allows for deeper choice without overwhelming participants. While diversifiers such as private equity are not yet widely adopted, these discussions signal a willingness to consider new frontiers in menu design, provided there are appropriate safeguards, education, and alignment with fiduciary duty.

Communication and the Participant Experience

Even a well-designed menu can fall short without effective communication. Participants rarely understand investment theory, but they respond to feelings of control, safety, and predictability. As noted in DCIIA’s behavioral research, decision framing and interface design are essential. Committees should consider how options are presented, how risks are communicated, and how tools can reinforce sound choices.

While some believe plan sponsors should take the lead in participant messaging, others argue for standardization and oversight from recordkeepers. Striking the right balance between customization and consistency remains a challenge—and an opportunity—for plan sponsors.

Conclusion: Toward a Balanced Investment Menu

Investment menu design sits at the intersection of fiduciary duty, participant behavior, provider influence, and market conditions. Simplicity supports participation and administrative efficiency but may sacrifice customization for those who need it most—especially older participants approaching retirement.

By layering the practical insights and ideas from the DCIIA RRC’s Design Matters pulse survey with the foundational framework of behavioral finance and fiduciary best practices, plan sponsors can begin to answer two critical questions:

• What is the true cost of simplicity?
• Can we evolve our menus without overwhelming participants—or ourselves?

There is no perfect solution, but the best-designed menus are not static. They reflect the needs of a diverse workforce, adapt to new information, and always put participants first. Plan sponsors, with support from their consultants, advisers, legal counsel, and recordkeepers, have an opportunity to build a more intentional investment experience that meets participants where they are—and where they’re going.

Please see DCIIA’s Investment Menu Influences in Defined Contribution Plans for additional insights.

Pamela Hess is the executive director of research and Karen Witham is the vice president of committees and communications at the Defined Contribution Institutional Investment Association.

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of ISS STOXX or its affiliates.