The Department of Labor just came out with more guidance on Target Date Funds late last week. Plan sponsors should follow best practices by understanding the glide path, composition of the underlying assets, fees and risk of target date funds.
"It's no longer OK for a plan sponsor to take a TDF just because it's the only one offered by that plan's vendors," says Mark Davis of CAPTRUST in L.A. As an advisor to plan sponsors, he's in a position to help them compare their options. But they also need to read and understand TDF prospectuses, look on Morningstar's rankings and visit the websites of the TDF itself.
The DOL didn't go far enough to insist on truth in labeling, says Joe Nagengast, founder of Target Date Analytics in Marina del Rey, Calif. Companies can call a fund 2015 and end the glide path from aggressive to conservative there, but another fund also may be called 2015 and be using 2040 as the target date. In that case, the portfolio will be much more risky and will jeopardize the retirement savings of participants.
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