KnowHow Archive

Plan Sponsor Guide Participant Guide

Risk vs. Date

In nearly 30 years working with employer-sponsored retirement plans, I am hard-pressed to call to mind a product innovation that has been adopted with as much vigor as the current generation of target-date funds.

In PLANSPONSOR's 2006 Defined Contribution Survey, more than three in four of the nearly 5,000 responding plans had a risk- or target-date-based option on their menu—compared with "just" 54% in the prior year's survey. You can count on an equally impressive tally in the 2007 survey results.
There's being on the menu, of course, and there's being chosen from that menu. Still, all in all, it would appear that participants have more access to such choices and are beginning to awaken to the simplicity of an investment choice that requires referencing little more than a birth certificate (though many still make the case that a single investment allocation approach cannot possibly be suitable for every participant who plans to retire in the year 2040).
Where variety still exists is in the choice of asset-allocation offerings for your particular plan.
Some, particularly those that have offered the convenience of these pre-mixed offerings for a long time, likely do so via lifestyle funds or, as they are frequently called now, "risk-based" funds. Others may have embraced the newer flavor: target-date funds, or as you may still refer to them, lifecycle funds.
Still others may use a "managed account" solution, put together by your financial adviser or, in some cases, by your defined contribution­ provider—frequently from funds already present on your investment menu.
This month's Know How speaks to those three basic types of asset-allocation choices, and is designed to help you explain to your participants the differences among them. Personal financial writers tend to treat them interchangeably, and to some extent they perform much the same service.
Where they differ is, of course, of significance to you as a plan fiduciary, and to your plan participants, who are seeking to avail themselves of the insights of professional money managers.
To help you in making those choices for your plan, PLANSPONSOR recently has developed­ several tools through our Target Date Research Fund Suite (, and online Lifecycle/Lifestyle Fund Buyer's Guide (ww2.planspon­ I encourage you to take advantage of these resources.
As always, we appreciate your thoughts and look forward to your feedback.