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The Dog That Didn’t Bark!
401(k) Investment Lineup Performance Reporting
Last Updated: May 13, 2025
A strong investment lineup is essential for helping employees get on track for retirement. Yet, many lineups consistently underperform, putting retirement readiness at risk. Even a 0.5% annual shortfall, when compounded over time, can significantly impact financial outcomes.
So why the gap? Standard investment reports often showcase strong fund returns, giving fiduciaries confidence in their decisions. But leading industry data—including PCI’s nine-year analysis—reveals that most plans fail to deliver. Are these reports presenting an overly optimistic view, masking the true performance of the plan?
The Curious Case of Competing Claims
Leading industry data tells that most 401(k) investment lineups continually underperform, despite the strong fund performance results displayed in standard reports.
Annual industry reports from both S&P (S&P Indices versus Active Scorecard or SPIVA)1 and Morningstar (Active vs. Passive Investing U.S. Barometer Report)2 show that most active managers fail to outperform their passive index benchmark over time.
PCI’s Investment Lineup versus Passive Scorecard (ILPS) report has shown that the poor performance extends to managers selected for 401(k) type plans. When aggregated over the last 9 years, only an average of 37% of plans outperformed their appropriate and respective benchmarks.3
Despite widespread claims of strong investment performance, persistent underperformance remains unaddressed, leaving plan participants at a disadvantage. A lack of transparency and accountability in reporting may be the reason most 401(k) lineups fail to meet their benchmarks.
Wait, Where’d That Performance Go?
Standard 401(k) investment reports, like a Morningstar review, focus heavily on individual fund performance. If you’re part of a retirement plan committee, you’re familiar with quarterly reviews where funds are scrutinized against benchmarks. These reports often feel comprehensive, filled with clean charts and return statistics, creating the impression that all is well—until it’s time to replace a fund.
Think back to the last time your committee swapped out a fund. Your adviser likely highlighted the fund’s underperformance and recommended a “rising star” fund with an impressive track record. It seemed like the right move—after all, the new fund had strong past performance and fit the plan’s criteria. The change was made, and reports now show the new fund’s strong performance. But what happened to the underperforming fund it replaced?
Here’s the problem: While the new fund’s history may look stellar on reports, participants are still left bearing the financial impact of the previous fund’s underperformance.
The standard reports focus on the current lineup, offering a polished snapshot of performance that may appear strong. Meanwhile, participants experience the cumulative returns of all funds they’ve encountered during their time in the plan, including those removed for underperformance.
This disconnect means your quarterly results might inspire confidence, while participants are still paying the price for past fund decisions.
Case Study: The Dog That Didn’t Bark
It’s Time for a Fund Change!
Your adviser recommends replacing an underperforming Large Value Fund. The committee approves a new fund, effective in Quarter 3.
A standard investment report of fund lineup performance.
Here is what you will see when you have your first meeting with the adviser after the change.
Spot the difference.
Typical investment lineup reporting removes past underperformance of replaced funds, creating a disconnect between the performance reported to your committee and the performance experienced by your participants.
Like Sherlock Holmes, the mystery of why your participants struggle to get on track for retirement might be solved by considering The Dog That Didn’t Bark.
There’s a Bigger Puzzle
The lack of standardization in 401(k) investment lineup reporting hides poor performance, leaving committees unaware of its overall impact. Without a proven methodology that tracks historical lineup changes, underperforming funds are replaced, making the current lineup look strong while participants bear losses—and those losses can compound tremendously over time.
Be On Alert!
Many competitors sell these reports as proof of success, yet they ignore how the entire lineup, working as a whole, affects participant outcomes. Success is not about one or two standout funds; it’s about how well the entire lineup improves participants’ retirement outcomes. When you start considering the collective impact, it becomes clear: the overall lineup matters just as much—if not more—than the individual parts.
The Path Forward: Mystery Solved!
Good news: a well-managed 401(k) can, and should, get employees on track for retirement!
To better align your plan’s investment lineup’s success with your participants’ retirement outcomes, here are some steps to consider:
- Set a Clear Goal
Make it clear that the primary objective of your 401(k) plan is to get employees on track for retirement.
- Assign Responsibility
Designate an accountable party responsible for monitoring and managing to the goal, offering accountability in the process.
- Demand Aligned KPIs
Insist on performance reporting that includes every fund’s performance for the entire duration it was in the lineup.
Compare Apples to Apples
Use metrics that compare your lineup against an all-index benchmark to provide a comprehensive view of performance.
WEBINAR ON DEMAND
In this 30-minute webinar, we explore how 401(k) fund changes can obscure poor performance. It offers valuable insight into the traditional tactics used to report investment performance and how they may be concealing subpar results.
The case study in this article is a hypothetical scenario intended only for illustrative purposes. It does not represent actual performance of any investment and is not intended as investment or legal advice.
References:
“S&P Indices Versus Active (SPIVA) Report.” S&P Dow Jones Indices. https://www.spglobal.com/spdji/en/research-insights/spiva/
2) “US Active vs Passive Investment Management Barometer Report.” Morningstar. https://www.morningstar.com/lp/active-passive-barometer
3) Rui Yao, PhD, CFP®. Professional, Personal Financial Planning, University of Missouri. “Retirement Plan Performance: 2021 Update.” May 17, 2024. https://pension-consultants.com/ilps/
