TDFs See Significant Growth in 401(k) Sector

March 23, 2012 ( – Assets in target-date funds (TDFs) grew to $380 billion by year-end 2011 and are targeted to reach $1.1 trillion in 2016.  

By Tara Cantore | March 23, 2012
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According to research conducted by Cerulli Associates, as a result of the growth, TDFs will comprise 10% of 401(k) allocation, up from 2% in 2002.

Most proprietary TDFs remain dominated by defined contribution (DC) plan recordkeepers. However, sponsors of large- and mega-DC plans (those with $50 million or more in assets under administration) are piloting revolutionary shifts in TDF structure, Cerulli noted.

"As a result of a slow movement toward changing target-date structure, opportunity once closed to asset managers, could begin to widen as retirement plans across all segments reevaluate their target-date fund offerings and dominant proprietary funds of the past give way to customizable and passive solutions," said Alessandra Hobler, an analyst at Cerulli Associates and co-author of the research.

Hobler contends that as far as the participant is concerned, the changes to TDFs will be minimal and accumulator investors will continue to be offered target dates as a QDIA. The simplicity and automation plan participants appreciate will continue to be provided to them, even as TDFs evolve. The difference will lie in how the funds are structured, and that will depend upon the size of the DC plan. The change in TDF structure will be a result of the different needs brought forth by the various differentials in DC plan size.