DC Investing: Target-Date Funds
Hitting the Target
Sponsors evaluate ways to increase target-date fund efficacy
All the industry-talk about invest- ment fees and retirement readi- ness has led more sponsors to
think about how to increase the effectiveness of target-date funds (TDFs).
More than two-thirds ( 67.8%) of
defined contribution (DC) plans also offer
target-date funds as an investment option,
according to PLANSPONSOR’s 2011 DC
Survey. Furthermore, many plans continue to use the funds as an appropriate
investment for those not actively electing
an investment option: Approximately one-third of defined contribution plans now
use automatic enrollment, and approximately 54% of plans utilize target-date
funds as the default investment.
Conversations about target-date
funds tend to center around three topics:
customizing these funds to a particular
plan, moving to an indexing approach and
even re-enrolling existing participants.
Custom Target-Date Funds
The buzz about customizing target-
date funds apparently exceeds the num-
ber of plans actually doing so. “There
is a lot of discussion of customiza-
tion,” says John Ameriks, a principal at
The Vanguard Group Inc., who leads
Vanguard’s Investment Counseling &
Research group. “We do not actually see
a tremendous amount of customization.
Some sponsors have looked at the pros
and cons and decided that the cons out-
weigh the pros.” Jerome Clark, portfolio
manager of the T. Rowe Price Retirement
Funds, says, “From our perspective, we
know that there are some mega plans
incorporating open architecture for cus-
tom target-date funds. As far as penetra-
tion across the board, we are not seeing
that.”
Across all plan sizes, 22.5% of
plan sponsors say they are considering
