As more assets flow into TDFs, analysis of how they are created is becoming essential to advisors and plan sponsors. There are numerous tools available from firms like Allianz, Pimco and JP Morgan to get under the hood — especially understanding whether a fund is intended to take the investor “to” or “through” retirement. The other key elements are the aggressiveness of the glide path, especially as they get closer to their maturation dates, and the underlying investments — that is, whether they are proprietary, passive or include alternative strategies.
But what is rarely mentioned is what deferral rate the TDF manager assumes for participants using the fund. Shouldn’t a plan with an average 10% rate be treated differently than one with a 3% rate? This question highlights the major flaw of TDFs: One size does not fit all investors or plans. According to Glenn Dial, head of Allianz’s DCIO group, however, their TDF analysis tool takes into account the assumed deferral rate of the TDF and can help a plan pick the right TDF based on its current deferral rate.
Increasingly, the key decision for plans, especially larger ones, is not which record keeper they should select but which TDF is right for them and their participant base. With many record keepers offering limited choices of TDFs and some restricting it to their proprietary TDFs, many advisors are starting their search criteria with identifying which TDFs are available on the platform.
