Based on last year’s DOL guidance to plan sponsors on evaluating TDFs and their growing popularity as a QDIA, the Defined Contribution Institutional Investment Association has released a comprehensive guide in plain language that advisors can use with clients and prospects.
The DCIIA white paper begins by outlining the purposes of TDFs, including:
• Diversification
• Professional asset allocation
• Reduction of exposure to equities close to retirement
Plan sponsors should create and conduct a prudent process in selecting and evaluating TDFs that should take into account the unique characteristics of the plan, like the demographics of the workers and whether the TDFs are compatible with the plan’s current IPS. The TDF review of should include:
• Glide path – “to” or “through”
• Single manager or multi-manager
• The role of each asset class that’s included
• Passive or active investments, or both
• Off the shelf versus custom
• Investment vehicles, including MFs, CITs and SMAs
• Cost
Not mentioned: the use proprietary TDFs of the record keeper. Like other criteria, there is no right or wrong as long as there is a prudent process.
