Surprisingly, many plan sponsors have not implemented any process to select target-date funds. (Photo: Shutterstock)
With the continued growth of target-date funds showing no signs of abating, retirement plan sponsors will want to review their plan offerings to ensure they are meeting the savings needs of their employees.
Two important factors have contributed to the surge in target date funds:
- They are often the default investment option for many defined contribution plans
- They are easy for most employees to understand.
The numbers below from research firm Cerulli Associates tell the story:
- 88% of new contributions, representing 35% of total 401(k) assets, will be invested in target-date funds by the end of this year
- Target-date fund investments will total $2 trillion by year-end
While target-date funds are among the most common offerings in defined contribution plans, when you dig a little deeper you soon learn they are also the most widely misunderstood: by plan sponsors (many of whom believe they are all similar); by participants (whose understanding of how they work is all over the map); and even investment advisors (who may not have access to the research tools necessary to properly evaluate the funds for suitability for participants).
We believe there is potential – and substantial – fiduciary liability exposure for plan sponsors in this area, particularly when the next market downturn occurs. This may be an upcoming focus of litigation, especially since the Department of Labor has clarified how plan sponsors are expected to select and monitor target-date funds.
Continue Reading for Free
Register and gain access to:
- Breaking benefits news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical converage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.