DC Plans Investment Menu: Too Much of a Good Thing?

March 2026

Investments are a critical component of any defined contribution (DC) plan. The DC plan itself represents a significant investment for plan participants and is often the most substantial nonresidential asset.

Investment menus within DC plans have undergone significant transformation during the past 45-plus years, as these plans have increased in both availability and importance as a retirement funding resource. When I first began supporting the DC/401(k) business at a leading record keeper, our plan menus consisted of about five proprietary funds and a stable value option.

It was a very big deal when we introduced an “outside fund.”

Today, what is the implication of having a larger or smaller investment menu? And what does the decision to expand or scale back an investment menu say about a plan and its sponsor? Is there a connection between investment menu size and other plan metrics, and plan sponsor proclivities and preferences?

In 2025, we conducted our biyearly survey of 1,000 DC plan sponsors, and one of the dimensions we looked at was the number of investment options offered by the plan. We then segmented our responses by investment menu size, creating four categories: fewer than 10, 10–14, 15–29 and 30 or more.

As might be expected, we did find a very clear correlation between plan size, as measured by assets, and the number of investment options. Larger plans are more likely to have more investment options — 28% of plans with $50 million or more in assets have 30 or more options, compared to just 5% of plans with less than $5 million in assets. At the other end of the spectrum, for very small menus of fewer than 10 options, we see 44% of those micro plans but just 15% of the largest plans (Figure 1a and Figure 1b).

The correlation is clear but not absolute. Interestingly, the largest DC plan in the U.S., the federal government’s Thrift Savings Plan, offers a relatively limited investment menu of five core funds and a series of 11 Lifecycle Funds to its more than 6 million plan participants. The plan also offers a mutual fund window for participants who want to explore the wider universe of mutual funds.

Combining Size and Sentiment

Employers can offer DC plans for a multitude of reasons — not the least of which may be that they are required to. A quarter of plan sponsors overall say that a government mandate is a strong part of the reason they offer a plan, and the effect of government mandates is more pronounced for plans with larger menus — 37 percent with 30 options versus 24 percent for plans with fewer than 10 options (Figure 2).

Sponsors with larger investment menus report stronger overall motivation to offer the plan than do those with smaller menus, citing competitive advantages in hiring, improvements in employee morale, and the influence of federal and state mandates and programs.  But there is an important exception: Fewer employers with larger investment menus report that helping employees prepare for a secure retirement is a strong motivating factor for offering a plan, suggesting that practical rather than strictly altruistic reasons underpin their DC investment strategies. (In this, these employers do not track closely with the largest plans in terms of assets; 60 percent of those plan sponsors say that helping employees is a strong motivator).

Further supporting this hypothesis, 52 percent of employers with larger menus would be willing to discontinue their organization’s traditional DC plan in favor of a government solution, compared to 34 percent of plan sponsors overall, and just 21 percent of sponsors with very small investment menus.

What Does This Mean?

Very large investment menus may be, at least in part, the result of expedience rather than strategy that supports an organization’s goals. And there may be impacts for both sponsors and participants.

Behavioral finance and choice architecture are critical in the design and management of DC plans, in driving participation, contributions and asset allocation.

Before the widespread implementation of target date funds, asset allocation in DC plans was largely a conundrum for employees, many of whom were ill-equipped to make these decisions and relied on rules of thumb rather than strategic asset allocation. Giving those employees a wide range of options from which to choose was perhaps a strategy to address diverse participant needs and varying levels of investment sophistication — and sometimes to address the predilections of the more vocal participants.

But there can be unintended consequences at the participant level — those rules of thumb can lead participants to gravitate toward the familiar (employer stock), the safe (stable value) or simply to spread their investments over a series of options without understanding the potential risks of inadequate diversification.

The principle of cognitive load suggests that an increased number of choices can be overwhelming, leading to increased decision-making time, while, conversely, too few options can feel restricting. Either scenario can lead to procrastination or analysis paralysis by participants who must make important asset allocation decisions. While this principle is general and not specific to DC investment menus, additional studies and plan experience suggest that participants can indeed be overwhelmed by the number and complexity of the decisions and options involved in joining and managing a DC plan.

The popularity of automatic enrollment solutions, target date funds, and investment default options helps both employees (participants) and employers (plan sponsors) manage choice overload.

With plan sponsors, very large menus mean more options to monitor and manage — and potentially face fiduciary responsibility for — on an ongoing basis. Costs can increase, and a wealth of investments, especially with similar underlying investments and in similar asset classes, may create a misleading perception of diversification. Conversely, offering very few options may result in participants’ perception of inadequate choice. Finding that balance — determining the right size and composition of the investment menu — is key to providing value to plan sponsors, and the first indication that there is an opportunity for providers will be to assess the size of the menu.

The implications of a very large — or even very small — investment menu for both employers and employees present an opportunity for plan advisors and service providers to offer value in helping their employer clients and employees/participants manage successful DC plan experiences and investments.

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