Despite some shared alignments in design and principles, TDFs are anything but uniform in their philosophies regarding glide path, asset allocation mix and even the application of the target date itself. Matching TDFs’ various attributes to the needs of the plan, and the participants who are increasingly defaulted into them, is a significant and growing challenge for plan advisors, EBRI’s Nevin Adams notes in his most recent column in NAPA Net the Magazine.
At year-end 2012, EBRI data show that TDF assets represented just 22% of the assets of plans offering such funds in their investment lineups, Adams notes. “This probably reflects the reality borne out by a number of industry surveys — that most plan sponsors continue to deploy the automatic enrollment design and QDIA defaults only to new hires, who typically have smaller balances,” he observes. “However, even if these options currently represent a relatively small amount of plan assets, the impact of these shifts is already evident in the increasingly diversified portfolios of newer hires and younger participants.”
More significantly, Adams continues, “the TDF design incorporates an ongoing rebalancing, one that shifts the underlying portfolios such that they are less focused on growth and more focused on income over time. That rebalancing occurs automatically and without requiring the input or involvement of the participant-investor — or, arguably, the retirement plan advisor.”
Adams’ most recent “Inside the Numbers” column in NAPA Net the Magazine is here; a pdf of the entire 64-page issue is here.
