Do your target-date choices take participants to—or through—retirement?
In recent weeks, our industry and those that regulate it have turned a sharp and critical eye to the structure, labeling, and marketing of one of the most popular offerings in today's retirement plans: the target-date fund. That examination is not necessarily a bad thing, of course, particularly when you consider that they have quickly become a de facto investment solution for the nation’s prime retirement savings alternative.
That said, these solutions have benefited hugely from their simplicity. What is sold is the concept: professional money management, monitored and rebalanced over time.
With target-date solutions—and, more specifically, with target-date solutions as part of an automatic-enrollment strategy—we have been able to set aside many of the messages we once viewed as essential to participant-investor education. We no longer have to teach participants about the importance of asset allocation, the wisdom of "not putting all your eggs in one basket" (quite the contrary, in fact), nor the need to keep an eye on your investments and to rebalance regularly. The message today is, tell us your birth date and "we’ll take care of all that."
Still, as we are all now well aware, just because a fund positions itself as a 2010 fund does not mean that it shares a common notion of an "appropriate" allocation for an investor retiring next year. We will leave the determination as to which is "right" to others, but it is important for you—and for your participants—to know that there are differences, to know how that aligns with your fiduciary sense of "appropriate," and to help participant-investors make the decision that is best for them.
To that end, this month’s "Know How" acknowledges the "to" versus "through" retirement date philosophical variances—without placing that tag on them—as a way of helping your participants appreciate the importance of those distinctions. As always, I look forward to your feedback.
—Nevin E. Adams, JD