Another Look at TDFs

August 12, 2014 ( - Over the last several years target-date funds (TDFs) have gained a great deal of popularity, and they are being looked at, poked, inspected, regulated and debated.

There are arguments about “to” versus “through” and arguments about fees. Some have suggested that fiduciaries examine whether “proprietary” funds are acceptable or if outside money managers have to be offered. 

I do not want to reexamine these issues. Rather, I want to ask a new question: Does anybody really think a new plan participant just starting to save in his or her employer’s retirement plan will be in a TDF 30 to 40 years later? Does it not seem likely that job changes and new investment products will have that person change from a TDF to something else, likely even more than once?

I am not an academic, I am not an economist and I am not a statistician. But my 22 years of experience in the retirement plan field tells me we are asking the wrong questions about TDFs. Instead of more regulations and debates, we should be focusing on educating employees about these funds.

TDF’s are good, and suggestions that could result in more money for TDF investors, including fee disclosures and lowering costs, are good. But, the most important thing is educating the employee about using a TDF to get him or her started on the right investment path; perhaps even about using a TDF throughout much of his or her career if the participant does not want to manage the account himself/herself. But, is the debate about the proposed regulation and expectation for trustee examination really that important? 

We are focusing too much on “to” and “through.” We are dwelling too much on proprietary and outside managers. TDF’s are good products and have a place on a plan’s menu. And, as a QDIA (Qualified Default Investment Alternative) they are the best thing I have seen in 22 years. But, in my opinion, very few will retire with TDFs. There will always be new products, new strategies and new needs. The only question is whether the industry will do the job of educating the individual so that he or she can be best prepared with the best financial products. Let’s tone down the debates, papers, and proposed regulations about all these issues and spend that time and resource on educating participants about how and when to use a TDF.

The questions we need to answer for plan participants are: 1) Are you saving enough? 2) Do you really understand your investment options? 3) Are you using a mixture of investments appropriate for your time horizon, expectations, and risk tolerance? If we are going to do the best by our customers, we need to rethink our priorities in the conversation about TDFs.


Jeffry A. Berman is the founder and President of Employee Benefit Systems, Inc., a third-party administration (TPA) firm located in Syracuse, New York, He is also a registered representative of Cadaret, Grant and Co., Inc.,MemberFINRA/SIPC.  

Employee Benefit Systems, Inc. and Cadaret, Grant and Co., Inc. are separate entities.  

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.   

Any opinions of the author(s) do not necessarily reflect the stance of Asset International or its affiliates.