Casey Quirk: New Battle Lines Forming in TDF Arena

November 2, 2009 (PLANSPONSOR.com) - A new report predicts that rapid growth will restructure the asset allocation and packaging of target-date products, and that target-date and target-risk retirement vehicles will attract 80% of new and reallocated flows into defined contribution schemes for the next decade.

In fact, Casey Quirk & Associates predicts in a new research report titled "Target-Date Retirement Funds: the New Defined Contribution Battleground" that target-date funds alone will swell to $2.6 trillion of assets in 2018 (a point at which the report suggests the vehicles will represent nearly half the assets in defined contribution plans) from $311 billion in 2008 - an estimate that the paper describes as "conservative" in that they do not fully account for a number of additional catalysts, such as the introduction of automatic-enrollment IRAs and new regulations that could "further turbocharge target-date growth," according to the report.  

While nearly 90% of the 400 plan sponsors surveyed as part of the study said they were satisfied with their target-date options, at least to some degree, nearly two-thirds said they would consider changes - a combination that the report's authors say suggests that, while plan sponsors believe in the idea of target-date funds, they "now seek to improve its execution."  

Principal Concerns

Three principal concerns are driving many plan sponsors to consider changes to their target-date arrays, according to the report:

• cost containment,
• liability protection and
• desire for greater diversification among both asset classes and managers (among larger plans at least)

"Learning lessons from the financial crisis, many plan sponsors will seek cheaper or more innovative target-date options for their participants," the research paper notes.   "That shift—and the unbundling it may unleash—will favor target-date vehicles that look notably different from the products available today."