Fee pressure is reshaping how 401(k) plans cover administrative costs, and plan sponsors—especially those overseeing smaller plans—are increasingly turning to a new breed of target-date funds to make the math work. But this solution comes with trade-offs that deserve a closer look.
A recent Morningstar analysis examines the growing adoption of “co-manufactured” target-date funds that incorporate stable-value funds as part of their asset mix. These funds allow recordkeepers to generate revenue from the stable-value component rather than through traditional revenue sharing embedded in investment fees. The result? Lower visible costs for participants. But plan sponsors should understand what’s happening under the hood before making the switch.
This shift is gaining momentum fast. Morningstar now tracks 47 target-date series that include stable value, with assets reaching $52 billion—more than double what they were at the end of 2022. Fifteen of these 47 series launched in just the past two years. Smaller plans are driving this trend, largely because they face the steepest per-participant costs for administrative expenses. According to Morningstar’s 2025 Retirement Plan Landscape report, 30% of plans under $25 million pay more than 100 basis points in total costs—a burden that makes revenue-sharing alternatives increasingly attractive.
But here’s where the trade-offs come into play. These co-manufactured series often allocate a significant portion of the fixed-income sleeve to stable value—sometimes as much as two-thirds. Stable-value funds provide principal protection and smooth returns, which helped them outperform bonds during the 2022 rate spike. However, heavy reliance on stable value may limit long-term growth potential for participants approaching and in retirement. When rates stabilize or decline, a diversified bond mix tends to perform better.
Plan sponsors and advisors should weigh these considerations carefully. Lower fees benefit participants, but portfolio construction matters just as much as cost. For those defaulted into target-date funds—which is most participants—the underlying asset allocation directly affects their retirement readiness. A more conservative tilt may feel safer in the short term, yet could leave participants with less income over a potentially decades-long retirement.
The takeaway for plan sponsors: if you’re considering a co-manufactured target-date fund, take time to understand the glide path (the gradual shift from stocks to bonds as participants approach retirement) and stable-value allocation. Ask how these funds performed across different interest rate environments. And make sure the cost savings don’t come at the expense of your participants’ long-term growth potential. As fee litigation continues to mount and plan sponsors look for new solutions, knowing what’s inside your default investment option has never been more important.
