Plan Sponsors May Have False Security with TDFs

November 15, 2011 ( – Defined contribution (DC) plan sponsors claim to have a higher level of confidence in their target-date-fund knowledge and offerings compared to a year ago, according to a survey by Janus Capital Group, Inc.

By Tara Cantore | November 15, 2011
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Despite the sense of confidence in target-date-funds, the data also revealed contradictory responses and the existence of a significant percentage of sponsors who seem to be unaware or unconcerned about areas that could present real fiduciary risk.

The survey shows that half of all plan sponsors are “not at all concerned” about litigation regarding target-date glide paths, yet more than 50% admitted they were not sure what their fund’s glide path is. Despite the high level of glide path uncertainty, nearly 70% of plan sponsors said they are confident their employees understand the structure and intent of target-date funds.

Almost 80% of all plans are either not, or not sure if they are, monitoring the duration of their target-date funds’ fixed income allocation.
Sixty-eight percent of all plans now have a target-date fund, yet only 45% said a target-date fund is the best qualified default investment alternatives (QDIA) option for their employee population.
Nearly 40% of plans that have both target-date funds and an investment policy statement (IPS) do not include language in the IPS pertaining to target-date funds and their underlying funds.

“The evolution of target-date funds continues at a brisk pace, and many good and valuable refinements will undoubtedly follow in the coming years,” said Russ Shipman, senior vice president and managing director of Janus’ Retirement Strategy Group. “With Baby Boomers’ laser-like focus on retirement income, we believe interest rate risk within the fixed income allocations of target-date funds will soon get much-deserved air time and scrutiny. Just as equity bets drove material differences in 2010-dated products during the 2008 market swoon, so too could ill-advised fixed income duration profiles for near-dated target-date fund offerings in a rising rate environment.”