Target Date Retirement Funds – Tips For Plan Fiduciaries

Many plan sponsors have selected so-called “target date” funds as the default investment under the plan sponsor’s 401(k) or other qualified plan. A target date fund is one that includes investments in different asset classes (e.g., stocks, bonds, money market) where the balance among the asset classes becomes more conservative as the participant gets older. A 2030 target date fund would be designed for use by a participant planning to retire in or near to 2030.

Plan sponsors should monitor the performance of target date funds as they would any other investment option under the plan. However, target date funds raise unique challenges, including the lack of an established index against which to measure performance and differences among target date funds in their “glide paths,” the period of time over which the fund moves to its most conservative investment allocation. Some target date funds continue substantial equity exposure after the target retirement date; others have moved to their most conservative asset allocation by the target retirement date. This difference in glide paths is sometimes called managing “to” or “through” the target retirement date.

The Department of Labor has posted on its website a short tip sheet describing target date funds and providing fiduciaries with guidance on how to select and monitor such funds. Plan sponsors offering such funds may wish to review that guidance.

Written by:

Published In:

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Stinson Leonard Street - Employee Benefits & Compensation | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »

All the intelligence you need, in one easy email:

Great! Your first step to building an email digest of JD Supra authors and topics. Log in with LinkedIn so we can start sending your digest...

Sign up for your custom alerts now, using LinkedIn ›

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.