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Evaluating Target Date Solutions

"[It] can be a valuable exercise for plan sponsors to take a step back and carefully evaluate the target date solutions in their plans to ensure they still are aligned with the plan's objectives, the investment committee's beliefs and preferences, the characteristics of the participant population, and the needs of the covered workforce."

Target Date Solutions Comments to DOL on Proposed Fiduciary Standard

"This letter specifically addresses certain misunderstandings about target date funds that the DOL may have reinforced, as well as a serious concern about TDFs that has not been addressed.... Here are the misunderstandings: 'To' funds are less risky at the target date than 'Through' funds.... TDFs can be matched to workforce demographic.... Low cost is best.... Our main concern is the glaring failure of many fiduciaries to vet their TDF selection. The DOL has not addressed this concern, but should."

Target Date Fund Landscape Shifts as Plan Sponsors Choose Non-Proprietary Solutions

"Recordkeepers' proprietary target-date fund share has declined by 16% since 2009, as the use of non-proprietary solutions from other asset managers has increased by 16%. Use of collective investment trusts (CITs) has gained in DC plans as providers look to reduce fees. Large DC plans are leading the shift to non-proprietary target-date funds."

Solutions to the Target Date-Fund Dilemma

Excerpt: Just as deciding if your plan-investment philosophy is to have funds go down less in a down market (more conservative) or go up more in an up market (more aggressive), plan sponsors should first decide if they want their target-date funds to get their employees 'to' or 'through' retirement. The formula for this is the fund's glide path.

Custom Target Date Funds: Is Now the Time?

"According to the [DOL], it is prudent to consider custom target date funds as an alternative to 'pre-packaged' target date funds. According to the regulatory authority, custom target date solutions may be able to provide benefits by incorporating the plan's existing core funds and adding opportunities to further diversify the investment lineup. However, it is important for plan sponsors to consider the cost and administrative tasks involved in creating a custom, or non-proprietary, target date fund solution."

An In-Depth Report on Target Date Fund Glide Paths (PDF)

"Safety at the target date is the most important benefit ... There is no fiduciary upside to taking risk at the target date. Only downside.... There is a 'risk zone' spanning the 5 years preceding and following retirement during which lifestyles are at stake.... Most participants withdraw their accounts at the target date, so 'target death' (i.e., Through) funds are absurd, and built for profit. All TDFs are de facto 'To' funds.... Employers should educate employees about the importance of saving, and report on saving adequacy."

Target Date Funds: The Next Generation, But Not a Silver Bullet

"These target-date funds of the future would be structured with glide paths that include the purchase of annuity-like units, designed to hedge longevity risk.... Currently the marketplace is struggling with how to deliver such a solution in a format that is diversified, portable, and low-cost. As the industry evolves and the need for retirement income solutions clarifies further, we look forward to these 'next generation' target-date funds becoming regular components of well-designed investment menus."

Tailored Target Date Fund Strategies That Can Match Demographics May Enhance Control and Reduce Costs (PDF)

"More than two in three consultants promote or support custom solutions. Plans as small as $200 million will likely go custom in the coming years. 51% of consultants believe that there is not enough choice in the market, or plan demographics are too unique for off-the-shelf solution." [A chart titled "Target-Date Funds: Find Your Fit" compares custom and off-the-shelf funds; the article includes a checklist titled "Customization: Key Steps."]

Target Date Trailblazers for 20 Years

"Former and current portfolio managers of [T. Rowe Price] target date solutions marked the 20‑year anniversary of T. Rowe Price target date investing with a discussion of the lessons they've learned and shared insights on the target date investing landscape and where they think it is headed."

Pandemic Heightens Concerns About Target Date Fund Risk (PDF)

"Target date funds (TDFs) have grown tenfold since 2008, when they lost 30%, from $200 billion to $2.5 trillion. Recent COVID-induced losses have alerted investors to the risk in TDFs.... Most TDFs are more than 85% in risky assets at their target dates."

Investment Managers Should Not Design Target Date Funds (PDF)

"Investment management firms are in the business of investing other people's money for profit ... [T]he profit motive leads to a design with the highest equity allocation allowed at the target date.... Financial engineers are trained to design investment risk and reward tailored to investor specifications.... A financially engineered glidepath ends at the target date with 10% in equities and the balance in safe assets like T-bills, TIPS, and stable value."

Plan Fiduciaries May Be 'Cruising for a Bruising' with Target Date Funds (PDF)

"[F]iduciaries are basing their TDF choice on limiting their liability. They believe that [1] any qualified default investment alternative (QDIA) will do and [2] you can't go wrong with the Big 3 [providers] because everyone else is using them.... At 15 years to the target date, the vast majority (75%) [of participants] want growth over safety, but this preference shifts dramatically so that only 17% prefer growth over safety at retirement.... [Participant] preferences are in line with Vanguard when participants are young but they move to the SMART index near the target date. In retirement, ... preferences are more conservative than all 4 paths."

Grading Target Date Funds from a Fiduciary Perspective (PDF)

"There is no fiduciary upside to taking risk at the target date. Only downside. The next 2008 will bring class action lawsuits. There is a 'risk zone' spanning the 5 years preceding and following retirement during which lifestyles are at stake.... [A] new grading system focuses on these key differentiators: [1] Who has the broadest diversification at the long dates when risk is being taken for younger participants?.... [2] Who defends best at the target date? ... [3] Are the fees reasonable?"

The Rise of Target Date Funds (PDF)

"The simplicity that target date funds bring to the plan participant investment decision-making process stands in sharp contrast to the complicated evaluation that plan fiduciaries must undertake in the selection process. When selecting a target date fund, there is no 'right' or 'wrong' answer for every plan -- but there is likely 'an appropriate fit' for your plan. This paper will explore the issues that plan fiduciaries will need to consider when adding or re-evaluating target date funds for their defined contribution plans."

Fiduciary Handbook for Understanding and Selecting Target Date Funds (PDF)

51 pages. Excerpt: "Target date funds are a good idea that could become a great idea. It wouldn't take much more to do what is best for beneficiaries. This handbook is normative. It explains what should be provided by target date funds. Each Chapter has 3 sections : Statement of facts ... Legal guidance... Ethical Perspective."

The Fiduciary's Guide to Selecting a Target Date Fund (PDF)

"[1] There is no fiduciary upside to taking risk at the target date. Only downside. Class action lawsuits are expected when the next 2008 occurs.... [2] There is a 'risk zone' spanning the 5 years preceding and following retirement during which lifestyles are at stake. Account balances are at their highest and a participant's ability to work longer &/or save more is very limited.... [3] Most participants withdraw their accounts at the target date, so 'target death' (i.e. 'Through') funds are absurd, and built for profit."

Why Are 'Demographics' Important to the Selection of Target Date Funds? (PDF)

"The 5 to 10 years prior to the target date are critical for profits since that's when account balances are their highest. It's also critical to participants because lifestyles are at stake. There is a conflict of interest. Fund companies say the wide dispersion of equity allocations at target date is because of demographics -- undersavers need more risk than the wealthy. Don't believe it."

2007-2018 Performance of Aggressive vs, Conservative Target Date Funds (PDF)

"Given the disproportionate history of gains over losses you'd expect aggressive TDFs to outperform less aggressive offerings, and this is certainly true for long-dated versus short-dated funds. 2050 funds have outperformed 2010 funds by a lot.... Have aggressive 2010 funds outperformed conservative 2010 funds? Have aggressive 2050 funds outperformed conservative 2050 funds? You'd think the answer to these questions would be 'Yes' but the results might surprise you."

Recommendations to the 2024 ERISA Advisory Council on QDIAs, Specifically Target Date Funds (PDF)

10 pages. "TDFs are not providing the level of protection near retirement that ... participants want and need. The Department should address this departure of common TDF practice away from the best interests of participants.... [T]he risk in most TDFs [is] excessive near their target date. It has benefited performance for the past 16 years because this has been the longest bull market on record."

Measuring Target Date Fund Performance (PDF)

"Participants in TDFs receive the standard time-weighted returns (TWRs) that are designed to eliminate the effects of savings. Contributions have no effect on TWRs.... Dollar-weighted returns (DWRs) combine the effects of investment performance with the impacts of the amounts and timing of contributions ... DWRs are a more informative performance measure for TDFs because they help participants recognize the efficacy of savings."