COLLECTED WISDOM™ on Target-Date Funds
Target-Date funds have become popular with 401k plan sponsors, vendors and participants, but choosing the appropriate target-date fund for a plan is not easy.
This archive contains not only the most current material on the topic, but also older items that are still relevant, provide background, perspective or are germane to the topic.
If you find a broken link or an items that you feel is outdate, irrelevant or no longer appropriate, please let us know.
Abstract: There are a host of target-date and plan design initiatives that the DC plan sponsor community is considering today that might, in theory, improve the retirement outcomes for their employees. This 14-page paper tests many of them by measuring the incremental impact each would have had over a specific 40-year time frame.
Source: Gmo.com, March 2017
Abstract: Use of target-date funds in DC plans continued to grow. At year-end 2016, 9 in 10 plans offered a TDF, 72% of all participants had a position in the funds, and the funds accounted for half of total plan contributions. Eight-page report.
Source: Vanguard.com, February 2017
Abstract: To help out plan sponsors and investment committees, the DOL offers tips for ERISA plan fiduciaries with respect to choosing target-date funds, including the establishment of a process for the periodic review of your selected target-date funds. The DOL reminds plan sponsors that plan fiduciaries are required to periodically review the plan's investment options to ensure that they should continue to be offered.
Source: Orbablog.com, February 2017
Abstract: Even though the DOL has suggested that selecting a target-date fund with a lifetime income component as a plan's default investment alternative may be prudent, the protections afforded by ERISA 404(c) will not apply if the product does not meet all of the QDIA requirements. This means that a plan fiduciary will not be automatically insulated from liability for participants' investment losses by selecting this investment option as the default alternative.
Source: Alston.com, February 2017
Abstract: With so much concentration of money in one type of investment, it's important retirement plan advisers have a process in place to choose the right target-date fund for their clients. Here are a few questions advisers can use to improve their TDF selection process.
Source: Investmentnews.com (registration may be required), February 2017
Abstract: While nearly 60 percent of new 401k participants have savings in target-date funds, little research has looked under the hood of this investment vehicle. This analysis uses a unique dataset with extensive information on the underlying mutual funds that TDFs hold.
Source: Crr.Bc.edu, February 2017
Abstract: Recognizing that not all managers excel in all asset classes, the marketplace has evolved and today most plans employ an open-architecture approach to core menu construction. In fact, it is unusual for a plan's menu to use the same investment manager for more than two or three different asset classes. Yet, with target-date funds expected to represent 48% of defined contribution assets by 2020, are sponsors unknowingly reverting to an antiquated plan design?
Source: Rackcdn.com, January 2017
Target-Date Fund With Annuity That Restricts Transfers May Be Prudent Default Investment (but not QDIA)
Abstract: The DOL recently concluded that a target-date fund with a fixed guaranteed annuity restricting transfers or withdrawals for a 12-month period does not meet the qualified default investment alternative requirements. But noting the need for lifetime income as a public policy issue, DOL said a fiduciary could prudently select a default investment that complies with all requirements of the QDIA regulation save the liquidity and transferability rules. Fiduciaries may be hard pressed, however, to select such an investment as a plan default investment because it does not protect them from liability for investing contributions on behalf of employees.
Source: Conduent.com, January 2017
Abstract: Plan sponsors are challenged to create a prudent process for selecting and monitoring the plan's target-date fund, and for benchmarking their selection against other options available in the market, relative to performance, risk and fees. Cammack introduces their TDF methodology in this paper.
Source: Cammackretirement.com, January 2017
Abstract: Target-date funds with annuities can now be considered prudent default investment options, so long as certain liquidity requirements are met, the Department of Labor said in informal guidance.
Source: Bna.com (registration may be required), January 2017
Abstract: What is an Evaluation Process Statement? An EPS is a written document that describes in detail a complete sequence of steps for selecting and monitoring investments, including the qualified default investment alternative and target-date fund, that incorporate your plan's investment objectives, fiduciary priorities and risk constraints.
Source: 401ktv.com, December 2016
Abstract: Over the last several years, TDFs have crafted new strategies and engaged in a marketing bonanza to stand out from the competition.
Source: Investmentnews.com (registration may be required), December 2016
Abstract: The investment community has made significant strides in understanding and evaluating target-date fund strategies over the past decade. Now, however, we have reached a plateau in target-date communication characterized by overly-simplistic dichotomies. This post will break down four key labels commonly used in target-date manager evaluation.
Source: Americancenturyblog.com, December 2016
Abstract: What are the objectives for your plan's target-date funds? Good chance your fund provider has told you that they are to replace pay and manage longevity risk. But that's not what TDF providers say in their official documents, namely their prospectuses.
Source: Targetdatesolutions.com, November 2016
Abstract: Target-date funds continue to expand in usage and popularity, but Nevin Adams believes there are some things the Labor Department wants you to know about TDFs that you may have overlooked.
Source: Napa-net.org, November 2016
Abstract: Over the last decade, the growth in retirement plan assets managed via target-date funds has developed into one of the most powerful trends in all of financial services. A large percentage of these assets are invested through the various defined contribution structures such as 401k, 403(b), and 457(b) plans. This article explores the history, structure, and role of target-date funds in retirement savings plans.
Source: Cammackretirement.com, November 2016
Abstract: This short article deals with seven common questions around TDFs including, what due diligence should plan fiduciaries perform when choosing a TDF, should a plan fiduciary employ an active or passive strategy for managing TDFs, and how does a plan fiduciary decide whether a custom or proprietary TDFs is more appropriate?
Source: Strategicbenefitservices.com, November 2016
Abstract: A growing number of DC specialists -- financial advisors managing at least $50 million in DC assets -- are now recommending customized funds to their plan sponsor clients, further signaling a potential shift in the target-date fund marketplace.
Source: Marketstrategies.com, November 2016
Abstract: Fiduciaries are obligated to monitor and evaluate the performance of their TDFs, but relative to what? Choosing the "right" index is complicated by the fact that that the asset allocation, and therefore risk, of TDFs changes through time. But this challenge can be distilled down to a simple black or white decision when viewed from a fiduciary perspective because there are only two types of prudence: procedural and substantive.
Source: Targetdatesolutions.com, November 2016
Abstract: Recently, target date fund managers have joined the conversation about whether the Barclays U.S. Aggregate Index ("the Agg") remains an appropriate benchmark for their bond exposure. BlackRock's analysis suggests that substituting part or all of the Agg exposure with other fixed income exposures offer either minimal or no benefit for most target-date funds.
Source: Blackrock.com, November 2016
Abstract: Many DC advisors are altering their approach to rollover/distribution advice and are spending more time thinking about compliance than about adding value for their clients.
Source: Marketstrategies.com, October 2016
Abstract: Given the importance of asset allocation decisions, plan consultants and advisors are increasingly seeing the value in fully understanding the philosophical underpinnings of the wide range of glide path designs available in the marketplace today. This article is intended to highlight key considerations plan fiduciaries may wish to incorporate into their glide path evaluation process.
Source: Manning-Napier.com, October 2016
Abstract: Retirement plan advisors and sponsors face vastly increased responsibilities today in the handling of their 401k target-date fund offerings. With increasing market uncertainty and the DOL's 'fiduciary rule,' these popular and important funds demand much greater involvement and oversight to meet the heightened complexity and rigor of new DOL compliance standards. This 5-page paper explains some of the specifics of the DOL's new rules and responsibilities for fiduciaries and offers guidance in successfully fulfilling them.
Source: Investbcm.com, September 2016
Abstract: The idea behind Target-Date Funds is to group together investors based on years until retirement and then manage the fund in a way that suits the generally accepted risk tolerance of those investors. But, just like all mutual funds, there are certain characteristics one needs to look for in a Target-Date Fund before investing.
Source: Brightscope.com, September 2016
Abstract: A truly custom strategy utilizing open architecture (best-in-class mutual funds from multiple companies) will likely be complicated and expensive to implement. Therefore, plan sponsors with a unique demographic participant profile should attempt to find a good fit among the 50+ proprietary TDF providers before attempting to create a custom solution.
Source: Strategicbenefitservices.com, September 2016
Abstract: Plain-vanilla portfolios have become a major presence in the target-date world after a difficult period for diversification. The author of this article doesn't think it's a good idea to bet that "plain and simple" will continue to win.
Source: Abglobal.com, September 2016
Abstract: The combination of target-date funds and managed accounts may be the right recipe for your investment menu. The use of professionally managed allocations like TDFs and managed accounts is transforming participant portfolios. Both options provide significant benefits and should be offered as complementary strategies to address the diverse needs of evolving participant populations.
Source: Vanguard.com, August 2016
Abstract: Fiduciaries should be able to answer the following questions to feel confident they are following the Department of Labor's 2013 Tips for ERISA Plan Fiduciaries on target-date funds.
Source: Strategicbenefitservices.com, August 2016
Abstract: The Pension Protection Act of 2006 encouraged employers to adopt automatic enrollment features for their participant-directed plans by providing a new type of fiduciary liability relief for "default investments," or Qualified Default Investment Alternatives (QDIAs). Quick overview here.
Source: Strategicbenefitservices.com, August 2016
Abstract: The QDIA regulations do not establish fixed income or equity exposures necessary to satisfy the requirement for a mix within a QDIA, but an investment fund or product with zero fixed income would not qualify as a QDIA.
Source: Retirementlc.com, July 2016
Abstract: The survey of over 230 DC plan sponsors with plans ranging in size from $25 million to over $5 billion found that non-recordkeeper or off-platform target-date funds continue to grow in popularity among plan sponsors.
Source: Seic.com, July 2016
Abstract: As target-date fund assets swell, a growing number of large plans have moved to custom TDFs -- the idea is custom target-date funds are just better than off-the-shelf target date funds. But plan sponsors shouldn't assume they ought to follow this trend.
Source: Napa-net.org, June 2016
Abstract: Target-date funds offer the premise of a one-stop solution for investors seeking professional allocation strategies. Despite this, there remains confusion about how to use target-date funds. Given this backdrop, author revisits target-date funds and notes some changes that came to light.
Source: Aaii.com, June 2016
Abstract: Target-date funds are the fastest growing investment in 401k plans primarily due to their popularity with plan sponsors as the QDIA. As some fiduciaries are starting to realize, evaluating target-date funds can be a bit tricky due to the numerous variances in style from one fund to another. Podcast discusses the three pillars of differentiation amongst target-date fund managers, glide path construction, investment diversification, and management style.
Source: 401kfridays.com, June 2016
Abstract: Interest in target-date and other types of balanced funds remained strong through 2014, with younger plan participants more likely to hold target-date funds than older participants, according to a new joint study released today by the Employee Benefit Research Institute and the Investment Company Institute. Among participants who were offered target-date funds, 65 percent opted to use them.
Source: Ebri.org, April 2016
Abstract: This article is about how an outside force has buffeted the target-date business, causing it to become the fastest-moving, most customer-responsive segment of the fund industry. Typically, mutual fund time is measured by decades. Among target-date funds, however, visible improvements occur each year. And the pace is only increasing.
Source: Morningstar.com, April 2016
Abstract: Morningstar recently released its annual report on target-date funds. There are encouraging signs that investors use these funds well, and the funds often serve as key lifelines to asset managers' bottom lines. In addition to looking at trends such as these, this year's report examines Morningstar's best practices in evaluating target-date series. This is a summary of the report's key findings.
Source: Morningstar.com, April 2016
Abstract: This 12-page paper reviews evidence that volatility may negatively affect participant behavior and consider whether a target-date fund managed to reduce downside volatility may do a better job keeping participants invested so they can better benefit from a market rebound. It also looks at the four risks that target-date funds need to manage.
Source: Blackrock.com, April 2016
Abstract: According to the 2015 MFS DC Investment Trends Study, even if recent market volatility has stirred up distant memories of the last major market downturn, DC plan sponsors and advisors still seem more focused on short-term factors than on longer term benefits when choosing target-date funds.
Source: Mfs.com, March 2016
Abstract: In 2015, 48% of Vanguard participants were invested in a professionally managed account option, including 42% who were invested in a single target-date fund. Use of TDFs in DC plans continued to grow. At year-end 2015, 9 in 10 plans offered a TDF, 69% of all participants had a position in the funds, and the funds accounted for nearly half of total plan contributions.
Source: Vanguard.com, March 2016
Abstract: A new report by Financial Engines looks at why the majority of participants move away from target-date funds over time. It found that investor overconfidence and a desire for greater diversification -- not lack of understanding -- are behind target-date fund misuse.
Source: 401khelpcenter.com, March 2016
Abstract: The process of evaluating and assessing these now-critical investment vehicles has lagged behind the rise in their significance as a key component of successful income replacement in retirement. This article describes a straightforward and efficient process a plan sponsor can use to rationally evaluate the quality of the TDF choices available to it.
Source: Segalco.com, February 2016
Abstract: This information graphic includes three steps that focus on target-date fund costs, stability, and investor focus in the industry.
Source: Vanguard.com, February 2016
Abstract: Most defined contribution participants fail to use target-date funds properly because they invest in other options as well as the target-date funds, said a research report by Voya Investment Management. Only 15% of target-date users put all of their retirement money in these funds in 2015.
Source: Pionline.com, February 2016
Abstract: Research is designed to help plan sponsors and their advisors better understand how different types of target-date fund designs may lead to dramatically different retirement outcomes, in part from how a particular glide path is likely to respond to various market conditions and in part from how participants are actually interacting with their plans.
Source: Jpmorgan.com, February 2016
Abstract: Target-date funds are the new normal. Industry data indicates 72% of plan sponsors selected target-date funds as the qualified default investment alternative within in their respective plans. Despite wide-spread utilization, a surprising number of plan participants misunderstand this investment vehicle.
Source: Francisinvco.com, February 2016
Abstract: This 11-page paper deals with the question, "How might a rising interest rate environment affect target-date fund investors who rely on their portfolio and other sources of income in retirement?"
Source: Vanguard.com, January 2016
Abstract: Insurance companies are straining at the leash to have lifetime annuities included as investment options in retirement plans. However, in addition to their oftentimes high costs, many annuities have the risk profile of a single stock. A viable alternative to annuities to help plan participants generate sufficient inflation-protected income are target-date retirement income funds (TDiF).
Source: Morningstar.com, January 2016
Abstract: This set of brief papers present key findings from Vanguard's target-date fund investor survey, which was designed to uncover investors' expectations and overall understanding of TDF characteristics and risks.
Source: Vanguard.com, December 2015
Abstract: The DOL has said that a plan fiduciary has the responsibility to prudently monitor the investment options on a plan's lineup, including TDFs. Article reviews the importance of monitoring a TDF.
Source: Principal.com, December 2015
Abstract: What do you consider the most important component of a target-date fund? Is it the glidepath, asset allocation, investment management style, fees or something else? While those are all critical, of course, there may be a factor you have not considered: How the fund manages participant behavior.
Source: Blackrock.com, November 2015
Abstract: Plan fiduciaries have been sued for allegedly breaching their ERISA fiduciary duties in shifting allocations in a plan's custom target-date portfolios to what it characterizes as "risky and high-cost" investments.
Source: Napa-net.org, November 2015
Abstract: Employers and plan sponsors have responsibilities and options to consider when selecting TDFs. A key responsibility is to conduct due diligence, perhaps even more than is done for other available funds, precisely because so many participants will make this their sole election. Article outlines some steps plan sponsors should follow when selecting TDFs.
Source: 401khelpcenter.com, November 2015
Abstract: Proprietary target-date fund offerings are no longer a shoo-in. Nearly half (47%) of all advisors selling defined contribution retirement plans now recommend an external manager for target-date funds rather than the proprietary target-date funds offered by the plan recordkeeper.
Source: Marketstrategies.com, October 2015
Abstract: This guide is focused on the practical steps to take during the evaluation process -- which may include comparison and selection of TDFs, understanding their underlying investments, reviewing fees, developing communications, and documenting the process. It provides a checklist for periodic reviews, key questions to ask when following the DOL guidelines, and items to consider.
Source: Vanguard.com, September 2015
Abstract: Two significant themes can be inferred from this year's data for the 2015 PLANSPONSOR Target-Date Fund Buyer's Guide: 1) Asset managers are deeply committed to target-date fund solutions, and 2) in their evolution, target-date fund solutions have moved far past any predicted 2.0 stage.
Source: Plansponsor.com, September 2015
Abstract: With over $741 billion in assets, target-date funds are the most popular investment choice in 401k plans and IRAs, according to the Investment Company Institute. But what exactly are TDFs, and why have they become so popular? An equally important question is, are TDFs the best investment choice to include in your 401k?
Source: Intuit.com, September 2015
Abstract: Target-date fund selection and monitoring is becoming more important as the assets held in these funds grow. Fiduciaries must move beyond industry chatter when addressing their participants' outcomes. Armed with an understanding of a plan's demographics, fiduciaries will be in a better position to determine how well a prospective TDF provider's glide path assumptions align with their plan's needs.
Source: Manning-Napier.com, August 2015
Abstract: Is there an objective way to select and monitor target-date funds and then realistically communicate how to use them to 401k investors? After the Supreme Court’s decision in Tibble v. Edison, 401k fiduciaries and their advisors must take this question seriously, even though Congress sanctioned the use of TDFs as qualified default investment alternatives.
Source: Investmenthorizons.com, June 2015
Abstract: The objective of a target-date fund should be to preserve a plan participant's savings, rather than to boost their value by taking on too much risk. The benefits of TDFs are diversification and risk control, preferably at a reasonable price, so trustees should base their TDF selection on the basis of more than just one or two criteria.
Source: Targetdatesolutions.com, June 2015
Abstract: All 401k fiduciaries should be asking themselves a question now that the U.S. Supreme Court's Tibble decision has made it perfectly clear that no investment option, regardless of how prudently it was chosen, can be set on autopilot and forgotten. The question therefore is how should target-date funds be monitored?
Source: Investmenthorizons.com, June 2015
Abstract: Even with the option to be more conservative or aggressive, most participants still stick to a moderate glide path. Similar to the shift from defined benefit to defined contribution plans, many in the retirement industry have been moving from target-risk to target-date funds. This reflects the trend toward automation as an answer to participant inertia, but are plan sponsors moving in the right direction?
Source: Planadviser.com, June 2015
Abstract: Target-date funds have seen tremendous asset growth in recent years, but their investment design hasn't kept pace with available innovations. Article reviews what the next-generation of target-date funds might look like.
Source: Abglobal.com, May 2015
Abstract: The majority of U.S. workers will look to their DC plan to replace 30% or more of their pre-retirement income. The likelihood of achieving this goal should be the measure by which plan fiduciaries select and evaluate QDIAs. The Objective-Aligned Glide Path has the potential to improve the probability of a participant having the real retirement income they need.
Source: Pimco.com, May 2015
Abstract: Brightscope announced recent findings in target-date funds as a result of their examination of the lowest cost institutional share class for all target-date funds through February 2015. This includes 59 target-date series, composed of 561 distinct target-date funds from 40 different asset managers.
Source: Brightscope.com, May 2015
Abstract: As target-date fund assets continue to skyrocket and as more 401k plans adopt auto-enrollment, plan sponsors are taking a taking a more measured approach to choosing the TDFs for their plans.
Source: Benefitnews.com, May 2015
Abstract: Target Date Solutions submitted this comment letter to the Department of Labor regarding its proposed fiduciary standard, with specific attention to target date funds.
Source: Targetdatesolutions.com, April 2015
Abstract: Custom TDFs are starting to become popular in larger DC plans. But do they make sense for plans with less than $1 billion? According to a report by consultants at Rocaton, the answer is yes, but only in certain circumstances.
Source: Napa-net.org, April 2015
Abstract: Given the high utilization of target-date options in defined contribution plans, target-date options are receiving ever greater scrutiny. As such, custom target-date options are becoming a more popular discussion topic. While there are many factors that could lead a plan sponsor to seriously consider custom target-date options, this nine page paper outlines a few key considerations when considering custom target-date solutions.
Source: Rocaton.com, April 2015
Abstract: The top factor for plan sponsors to have in place is a process to support the decision-making process of evaluating and choosing a target-date fund. Plan fiduciaries need a complete grasp of the vulnerabilities of their target-date strategies, and sources recommend tools and a documented process.
Source: Planadviser.com, April 2015
Abstract: Learn more about the risk/reward tradeoffs that come when a target-date manager focuses on one specific risk rather than managing risk dynamically.
Source: Jpmorganfunds.com, April 2015
Abstract: Target-date fund expense ratios continued their steady decline, falling to 78 basis points in 2014 on an asset-weighted basis vs. 84 basis points in 2013, according to the latest annual survey of target-date funds published by Morningstar.
Source: Investmentnews.com (free registration may be required), April 2015
Abstract: In 2014, the use of target-date funds in DC plans continued to grow rapidly. At the end of last year, 88% of plans offered a TDF, 64% of all participants were invested in the funds, and the funds accounted for 41% of total plan contributions. In this eight page paper you'll get the latest statistics on TDFs.
Source: Vanguard.com, April 2015
Abstract: This paper offers a thorough understanding of the research and philosophy behind Prudential's Day One target-date funds, which were created to address retirement risks all people face, with a particular focus on longevity risk.
Source: Pionline.com (registration may be required), April 2015
Abstract: One long-time portfolio designer says addressing risk in TDFs is a bit like playing a game of whack-a-mole: Focusing too much on one risk lets the others run rampant.
Source: Plansponsor.com, March 2015
Abstract: In order for a plan sponsor to meet their fiduciary obligations to prudently select and monitor their target-date funds, a thorough analysis is necessary because of the underlying complexity of these products and their unique structure relative to the traditional "core" investment options that defined contribution sponsors are used to evaluating. In this program, Scott Cameron, CFA, presents a framework for a sound fiduciary evaluation of a target-date series
Source: Youtu.be, February 2015
Abstract: Target-date funds are winning. With roughly $700 billion in assets, most of it in 401k plans, they have truly become a category killer. But, why are they winning?
Source: Brightscope.com, February 2015
Abstract: Target-date funds continue to trump other options plan sponsors have to sign up participants in 401k plans. But in 2014, companies took a hard look at the type of target-date fund they offered and made dramatic changes.
Source: Workforce.com (free registration may be required), February 2015
Abstract: SEC Commissioner Luis Aguilar believes target-date funds should be given the same treatment as cigarettes, they both should come with dire warning labels. Aguilar feels "The relentless growth in target-date funds is troubling because studies have shown that investors, and industry professionals alike, do not fully appreciate the risks these funds present."
Source: Fiduciarynews.com, February 2015
Abstract: When selecting a target-date fund, there is no right or wrong answer, but there is likely an appropriate fit for your plan. This paper explores the issues that plan fiduciaries will need to consider when adding or re-evaluating target-date funds for their defined contribution plans.
Source: Pnc.com, February 2015
Abstract: Worried that inflation might spend your retirement money before you do? Learn how target-date funds can help manage inflation risk.
Source: Blackrock.com, February 2015
Abstract: Defined contribution plans are sharply cutting back on target-date funds offered by recordkeepers and also expanding use of custom target-date funds, according to a survey by Callan Associates.
Source: Pionline.com, January 2015
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