The ComperioAdvantage: Are Your Target Date Funds on Target?
The popularity of target date funds has been on the upswing for the past 20 years. This trend accelerated when the 2006 Pension Protection Act identified target date funds as qualified default investment alternatives (QDAI) for sponsors choosing a safe harbor plan design.
Plan Sponsors adopting auto enrollment have also impacted the rapid growth of assets in target date funds.
According to Brightscope and the Investment Company Institute (ICI), over 80% of 401k plans include target date funds in their lineup. This trend also holds true for other defined contribution plans such as 403(b) and 457s.
A Target Date Fund (TDF) – also known as a lifecycle or age-based fund automatically adjusts its allocation mix of stocks, bonds and cash equivalents over time for the participant, based up on their expected retirement date. The TDF funds typically reduce their exposure to stocks as the timeframe gets closer to retirement, which is referred to as the fund’s glide path.
$44 million in retirement plan assets
Average account balance $34k
- Ensure a formal prudent fiduciary process for evaluating and selecting target date funds (TDFs) that is well documented
- Create and implement an ongoing due diligence review process of the Plan’s target date funds
- Consider Plan characteristics
- Understand participant/employee population
- Review and agree upon the goals and objectives of the Committee
- Separately identify and document the goals and objectives for the target date fund