Search the News Archive

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.

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."

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?"

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."