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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.

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Study Highlights Important Trends and Implications for Target-Date Fund Design

Abstract: An ongoing study of how real-life participant saving patterns interact with target-date design continues to show that suboptimal participant behaviors and the consequent increase in cash flow volatility remain much more prevalent than many plan sponsors might expect. This series of three articles discusses findings and the steps plan sponsors can take to place participants on a path to a more secure retirement.

Source: Jpmorgan.com, December 2018

Why Target-Date Funds Miss the Boat

Abstract: The fundamental, underlying problem with most target-date funds, then, is that they focus primarily on the savings phase of retirement planning while ignoring the spending phase. This is reinforced by most target-date fund evaluators because they focus on one-, three-, five-, or 10-year performance and risk (standard deviation). That is, they evaluate target-date funds only in terms of how they treat accumulation, not how they handle both accumulation and decumulation.

Source: Morningstar.com, December 2018

The Target-Date Funds State of the Union

Abstract: LifePath, the industry's first target-date fund, prepares to mark its 25th anniversary in 2018, creating the perfect opportunity to step back and consider the growth and future of target-date funds.

Source: Blackrock.com, November 2018

Revisiting Target-Date Retirement Income Funds

Abstract: This article explains why advisors to retirement plans may wish to consider offering a series of target-date retirement income funds and provides an update about a development.

Source: Morningstar.com, November 2018

What's Driving Fiduciaries to Multimanager Target-Date Funds?

Abstract: In a recent survey of nearly 500 consultants, sponsors, and retirement plan advisors, the majority now prefers open-architecture, or multimanager, target-date funds. This portends a significant shift in plan design, given that less than a third of target-date funds employ an open-architecture approach today. Performance is the driving factor.

Source: Jhinvestments.com, October 2018

Evaluating Target-Date Funds - A Fiduciary's Guide

Abstract: Whether there are target-date funds in your defined contribution plan lineup or you're considering adding them, evaluation and review are critical to your due diligence process as a plan fiduciary. 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.

Source: Vanguard.com, October 2018

The Evolution of Target-Date Funds: Using Alternatives to Improve Retirement Plan Outcomes

Abstract: The underlying investments in DC plans need to evolve to improve retirement income outcomes for participants. The strategic use of alternative assets in a TDF structure, or a diversified TDF, demonstrates that including these asset classes can improve expected retirement income and mitigate loss in downside scenarios.

Source: Georgetown.edu, October 2018

Target-Date Funds Risk Missing the Mark for Retirees

Abstract: One of the most popular investment strategies employed in US retirement accounts is ill-suited for the job, according to research on retirement outcomes. These strategies are known as target-date funds. Academics suggest such products may struggle to deliver a consistent stream of income for retirees.

Source: Ft.com, September 2018

Target-Date Funds Widely Used by Younger Plan Participants

Abstract: Younger 401k plan participants have large allocations to target-date and other types of balanced funds, according to a new joint study released today by the Investment Company Institute and the Employee Benefit Research Institute. At year-end 2016, 64 percent of 401k participants in their twenties held target-date funds, compared with 45 percent of 401k participants in their sixties.

Source: Ebri.org, September 2018

Target-Date Outcomes Improve With Introduction of Alternative Investments

Abstract: As more plans adopt qualified default investment alternatives for their set-it-and-forget-it participants, target-date funds have grown to nearly $2 trillion in assets. Now that the problem of getting people enrolled in a retirement plan has been addressed, it is time to tackle how investments in these plans are chosen to make sure there is a focus on long-term outcomes and performance.

Source: Benefitnews.com, August 2018

The Dangers of Putting Your 401k on Autopilot

Abstract: Among the biggest DC trends is the use of target-date funds to grow retirement wealth. According to a recent Vanguard report, nine in 10 defined contribution plan sponsors offered target-date funds as an investment option at the end of 2017. If your retirement plan currently includes target-date funds or you're considering them, it's important to balance their pros and cons.

Source: Investopedia.com, August 2018

Are Target-Date Funds Enveloped by Unrealistic Expectations?

Abstract: It isn't hard to find a plan that has invested in target date funds (TDFs). But it can be hard to find assessments that ask hard questions about them. A recent white paper fills that void and asks whether TDFs are the panacea some may think.

Source: Asppa-net.org, July 2018

Target-Date Funds the Engine Powering Continued Growth

Abstract: Defined contribution money managers reported a large jump in target-date assets under management to $1.44 trillion as of Dec. 31, up 30.5% from the end of 2016, according to Pensions & Investments' annual survey. Consultants cited target-date strategies' prominence as default investment options, the increased use of auto features, and positive market returns in 2017 as contributors to those funds' growth.

Source: Pionline.com, July 2018

401k Advisory Firms With Custom TDFs Offer Pain, Solace to Asset Managers

Abstract: Target-date funds built by firms with large networks of 401k plan advisers are beginning to gather significant assets, posing a direct threat to some asset managers trying to distribute their own products.

Source: Investmentnews.com (registration may be required), July 2018

The High Stakes of QDIA Selection

Abstract: For plan sponsors, the tremendous growth in assets, changing market conditions and balancing the needs of younger and older participants complicates selection and monitoring of target-date funds. Advisors can help by bringing plan demographics to the discussion and looking at the distribution of ages and account balances of a plan population.

Source: Americancenturyblog.com, June 2018

Target-Date Fund Benchmarks

Abstract: This article describes the benchmarks that are currently available and offers some guidance on selecting the appropriate benchmark. Fiduciaries should align the objectives of their TDF with those of the benchmark, and confirm that the benchmark glide path and underlying allocations are in line with the TDF that is being evaluated.

Source: Targetdatesolutions.com, June 2018

Target-Date Funds: Do the Risks Outweigh the Rewards? An Economist's View

Abstract: Economist Laurence Kotlikoff points out that economic theory does not support TDFs' age-based thesis. He cites two separate studies that independently concluded that we should hold the same portfolios as we age. In other words, our investment decisions should be the same when we're 30 as when we're 90. This article reviews why.

Source: 401ktv.com, June 2018

More 401k Savers Go All-In on TDFs

Abstract: The data are in, and they tell a powerful story about the state of retirement in America. The 17th edition of How America Saves delves into the retirement savings behavior of 4.6 million participants in defined contribution (DC) retirement plans for which Vanguard provides recordkeeping services. Our data-rich report examines trends in how participants accumulate, manage, and access retirement savings.

Source: Vanguard.com, June 2018

How to Best Vet 401k Target-Date Funds

Abstract: Target-date funds differ significantly in terms of asset classes, glide path, fulfillment, and fees. It is a rich variety to choose from and at the same time may add to one's perplexity. So, how do plan sponsors evaluate a TDF series?

Source: 401kspecialistmag.com, May 2018

The $1 Trillion Target-Date Fund Landscape in Five Charts

Abstract: Target-date funds hit a momentous mark in 2017 by eclipsing $1 trillion in assets.The funds' unimpeded growth means target-date funds play an increasingly important role in retirement success for more and more investors. Morningstar's recently released annual report covers recent developments in the competitive landscape. Here's a summary of target-date fund landscape in just five charts.

Source: Morningstar.com, May 2018

Passive Target-Date Funds: Separating Myth From Reality

Abstract: The use of passive target-date funds in DC plans continues to grow, in part due to their low-cost relative to other TDF options. While the cost advantages of these TDFs can be attractive, cost represents only one of the factors that plan sponsors and their advisors should consider when selecting a TDF on behalf of participants. This 11-page paper highlights three common myths about passive TDFs to help plan sponsors dig deeper in their due diligence and ensure they follow a prudent selection process based firmly on their specific plan needs.

Source: Schwabfunds.com, April 2018

Target-Date Fund Benefits -- Beyond Returns

Abstract: Beyond the obvious benefit of having a professional manager and rebalance portfolios, the HR manager believes that target-date strategies relieve employee stress and burden of having to select and manage funds themselves.

Source: 401ktv.com, April 2018

TDF Analysis Highlights Passive Growth, Home Equity Bias

Abstract: In its discussions with TDF managers, Mercer has found many managers say they have not aligned with the ACWI, and have continued with portfolios that display home equity bias for a number of reasons; the research also shows strong growth in passive TDF market share.

Source: Planadviser.com, April 2018

More Critical Target-Date Trends to Consider

Abstract: Mercer is out with topical info on target date products, reminding all involved that the fact that so many participants simply default into TDFs does increase the importance of the plan sponsor's selection of the TDF provider.

Source: 401kspecialistmag.com, April 2018

Fidelity Puts Six Million Savers on Risky Path to Retirement

Abstract: Client money has continued to flow out of the Fidelity's Freedom Funds as retirement plan sponsors shift workers' savings to rivals in the target-date fund business. The exodus stems in part from unease with the way Fidelity has boosted performance, by ramping up risk. Since a strategy overhaul that took full effect in 2014, Fidelity has substantially increased exposure to stocks, including those from volatile emerging markets. The firm also scrapped a long-held belief of sticking to pre-set allocations of stocks, bonds and other assets in target-date funds.

Source: Reuters.com, March 2018

Target-Date Funds: Three Things to Consider

Abstract: This article addresses three major features common to most TDF's structure: asset allocation, management style, and fees. If not evaluated carefully -- on a manager-by-manager basis -- could result in a mismatch between an employer's goals and participant investment results.

Source: Psolve.us, February 2018

TDFs Have Improved Participant Diversification

Abstract: About a third of participants across Millennials, Generation X, and Baby Boomers who self-manage the investment of their plan accounts are more conservative than a typical target-date fund appropriate to their age.

Source: Plansponsor.com, January 2018

Target-Date Fund Confusion

Abstract: The proliferation of target-date fund varieties can confuse many plan sponsors. One survey found that while nearly two-thirds of plan sponsors consider investment performance the most important selection criterion when choosing a TDF for their participants, more than half are not confident that they have a solid basis for benchmarking the TDFs against other similar funds in the marketplace.

Source: Orbablog.com, January 2018

A Tipping Point for Target-Date Funds

Abstract: Vanguard plan participants reached a critical tipping point. Half of all Vanguard participants are invested in a single target-date fund. And 57% of all participants were solely invested in a professionally managed allocation: 4% were using managed account options, 3% held a single-risk-based balanced fund, and 50% held one TDF.

Source: Vanguardinstitutionalblog.com, November 2017

Competition for Target-Date Funds Is Heating Up

Abstract: Competition for target-date funds in the DC market is showing no sign of abating. DC Specialists are looking outside the two-dominant target-date fund providers. While American Funds and Vanguard continue to square off for the greatest proportion of target-date fund dollars among this elite plan advisor segment, three investment managers are gaining ground.

Source: Marketstrategies.com, November 2017

Is Open Architecture the Answer for Target-Date Managers?

Abstract: Despite the challenging barriers to entering a concentrated market, a new study points to open-architecture series as a way for target-date fund managers to benefit from increased demand for their products.

Source: Napa-net.org, November 2017

2017 Target-Date Fund Buyer's Guide

Abstract: The 2017 TDF Buyer's Guide represents $1.6 trillion in assets as of June 30. Of the target-date fund market reported, 60% of products are in mutual funds, 37% in collective investment trusts, and 3% in variable portfolios. The analysis is based on the 71 off-the-shelf, or prepackaged, products and custom solutions are excluded.

Source: Planadviser.com, November 2017

Advisor Q & A on TDF Monitoring

Abstract: Research shows that the majority of assets in DC plans today are invested in the QDIA, and most of those assets are invested in target-date funds. In speaking with top advisor teams in the industry, PIMCO learned that many would benefit from more guidance on how to establish and conduct an ongoing TDF monitoring process.

Source: Chaoco.com, October 2017

Target-Date Fund Selection -- Actively Selecting a Passive Offering

Abstract: It is important that plan sponsors understand that choosing a passive target-date option is far more complicated than opting for a passive option in a straightforward, single-style strategy. This 4-page paper highlights the key issues surrounding passive target-date funds, including how they differ from active strategies and how to differentiate between passive offerings.

Source: Fiallc.com, September 2017


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