Target Date Funds – adoption, impact, and oversight

With the increasing popularity of Target Date Funds in retirement plans – both from an offering perspective, as well
as adoption by participants, it is no surprise that this asset class has a meaningful impact on the retirement landscape.

The article and research paper by Vanguard provides a detailed look at the adoption statistics of TDFs.

Both from a plan sponsor and participant standpoint, the appeal of TDFs as a portion of retirement strategy is unquestionable.

The challenge that both constituencies face is having to understand the underlying characteristics of the alternatives available in the marketplace – including the glide path (rebalancing of the assets as the target date gets closer), the market risk associated with each fund, the various costs incurred by each, the investment style of the fund manager.

However, by definition, this challenge is better accomplished by the plan sponsor due to the fiduciary position that they are in. A large majority of the participants, though, have the dual responsibility of ensuring that they select the right TDF for themselves, and monitor them throughout the life-cycle of the investment to ensure that the selected fund continues to meet their criteria for being in the fund.

As a participant, are you doing that effectively? What are the biggest obstacles (in addition to the time commitment for such an oversight process) that you grapple with that could be addressed by the investment community?

Feel free to share your thoughts. We are very interested in your responses.