Well, over the past couple of weeks, I've heard a
lot of discussion around target-date funds, most recently
at the
PLANADVISER
National Conference (PANC).
Without question, plan sponsors and participants—and
perhaps not a few retirement plan advisers—were caught
off-guard by the varied designs and resulting experiences
of these popular investment offerings in recent months
2
.
That many participants assumed these offerings were a
no-maintenance solution to their retirement security is
understandable, IMHO, certainly in view of how they were
promoted by their manufacturers, sanctioned (from a design
standpoint, anyway) by regulators, and positioned on
retirement plan menus.
But let's face it, what happened in the markets last fall
happened pretty much everywhere and to everyone (at least
everyone who was invested in the markets).
And, while there's no way to truly quantify this, my
sense is that some of those 2010 participants who were,
unfortunately, caught in that market maelstrom were
nonetheless well-served in the months ahead of that
downturn, and perhaps since, by having their savings
invested in a truly diversified portfolio.
There remains, however, the "smoking gun"
issue—what DID participant-investors "know," and when did
they know it?
Or, perhaps more precisely, when SHOULD they have known it?
That and, were they really given the information they
needed to know it?
"To" Versus "Through"
The "to" versus "through" retirement debate—the notion
of whether the target date is an end point for target-date
investment or merely a point along the investing
continuum—remains unresolved in target-date circles.
Frankly, I have heard arguments (some better than others)
on both sides, and, personally, I see no reason that
informed and educated investors shouldn't be able to make
their own determination as to the approach that best suits
their situation.
What troubles me—aside from the reality that offerings
so different in composition, design, and intent have names
that are disquietingly similar—is that the assumptions
underlying the glide path are so often unarticulated.
I'm not talking about the relative mix of exotic asset
classes, or the soundness of the balance of equities and
fixed-income investments at the date of retirement (or
decumulation), though both are impacted.
No, I'm talking about the implicit assumptions these
various strategies employ to develop those glide paths that
purport to deliver on the promise (or premise) of adequate
retirement income.
Assumptions regarding the age at which investors will truly
begin drawing down those savings and at what rate, and—most
significantly—assumptions about the accumulation from which
they will be working.
See, to me, if you're promoting an approach that assumes
that you will have a certain amount saved, you need to tell
people what that amount is.
Alternatively, if you are backing an approach that assumes
a retirement saver won't have what is "needed," but hopes
to shore up some of that shortfall, it seems to me that you
should be upfront about that as well.
IMHO, for all the focus on asset allocation as the
be-all-and-end-all of the target-date debate, it's the
assumptions that underpin—or undermine—those decisions that
are at the heart of the matter.
Ultimately, whether you are a plan fiduciary or a
participant-investor, it seems to me that you can't—and
shouldn't—make a target-date fund decision until you fully
understand what is being assumed—and until you have matched
those assumptions with the reality of your particular
situation.
Because, as we all know, when you assume….
1
Hard as it is for me to imagine that you haven't heard
this, the expression is "When you assume, you make an
a.ss out of "u"
AND
me".
2
It is certainly worth noting that PLANSPONSOR/PLANADVISER
is hosting a conference devoted to the subject of
asset-allocated fund solutions next month.
See