Plan sponsors may have a false sense of security when it comes
to their plans’ target-date funds.
The trend of more defined contribution (DC) plans having
target-date funds (TDFs) in their investment menus continues this
year—more than two-thirds of DC plan sponsor respondents had
a TDF option in 2011 versus 60% in 2010, and just 43% in 2009.
This increase is especially significant considering the fact that this
year’s survey represented a larger share of the DC market in terms
of number of plans and assets: a 15%+ increase overall in plan
sponsor responses (nearly 7,000), and a
much larger representation this year from
large and mega plans (defined as having
$200MM+ in DC assets).
Now that TDFs have been around
for many years (admittedly they were
not nearly as prevalent prior to the enactment of the Pension Protection Act of
2006), plan sponsors appear to be more
comfortable with and knowledgeable
about their plans’ TDF offerings. For
instance, nearly 80% of plans believe
their recordkeeper is providing the most
appropriate TDFs for their employees (up
from 62% in 2010), while just 16% of this
year’s respondents are not sure (versus
35% last year). “The fund industry and
TDF providers in particular have stepped up the education of plan
sponsors and participants on the appropriate use of TDFs, which
undoubtedly accounts for better TDF confidence among plan sponsors,” notes Russ Shipman, Managing Director and Senior Vice
President of Janus’ Retirement Strategy Group. “However, other
factors may be at play as well, including an increase in the plans
using customized TDFs.” Indeed, custom TDFs are now used or are
under consideration by nearly a quarter of plans in 2011, up from
18% in 2010.
Plan sponsors are similarly comfortable with the risk—or
lack thereof—of potential litigation surrounding TDFs. Similar to
2010 survey results, less than 4% of plans indicated being “very
concerned” about liability in their Qualified Default Investment
Alternative (QDIA), TDF selection, glide paths, or the underlying
managers in TDFs. Fees drew a slightly higher level of concern ( 6.9%
were “very concerned”), again similar to 2010 results. However,
more than half of plan sponsors were “not at all concerned” about
QDIAs, TDFs, or fees.
Half of all sponsors
said they were “not at
all concerned” about
TDF glide paths...
yet more than half
admitted they were
not sure what their
fund’s glide path is.
METHODOLOGY: In conjunction with PLANSPONSOR, Janus Capital developed a series of questions for defined contribution plan
sponsors specifically pertaining to target-date and QDIA fund knowledge, satisfaction, and construction. These questions were included
in the PLANSPONSOR 2011 Defined Contribution Survey, which was conducted via an online questionnaire from July to September
2011. For more information, contact email@example.com.