From the September 2011 issue of Treasury & Risk magazine

Protecting 401(k)s from Inflation

Almost half of large employers plan to offer participants an investment that guards against inflation.

Companies are taking steps to give employees ways to protect their retirement savings from being eroded by inflation. A recent survey of 233 big companies by benefits consultancy Mercer found 46% offer or plan to offer an investment option that provides inflation protection.

Almost a quarter—24%—offer Treasury inflation protected securities (TIPS), according to Mercer, while 12% have an investment option that combines such asset classes as commodities, real estate investment trusts and TIPS. Another 10% of companies plan to offer an investment option that provides inflation protection within the next year.

Large companies are most likely to provide such an option. Mercer says 66% of companies with $1 billion or more of assets offer a protection inflation investment, vs. 37% of companies with plan assets of $250 million or less.

On the other hand, companies are wary of providing gold or commodities as standalone investments; 72% deemed commodities inappropriate as a standalone and 85% gave a thumbs-down to offering gold.

Most plans still rely on mutual funds, the survey shows, with the use of separate accounts or collective trusts remaining limited. But 34% of with assets of $1 billion or more use separate accounts and 36% of them use collective trusts.

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