Firms Release Target Date Funds Trends Report

August 9, 2011 ( - New analysis of 401(k) recordkeeper platform data has uncovered that retirement plan sponsors are selecting only specific parts of a target-date fund series, even though asset managers market the entire target-date fund series.

This is according to a new report, Trends in Target-Date Portfolios on Recordkeeper Platforms, released by Financial Research Corporation (FRC), and made possible through a partnership between FRC and BrightScope. Based on the research findings, FRC sees this trend having broader implications for the target-date market, as it suggests that certain asset managers will face demand hurdles for their target-date funds that were previously unexpected.   

According to a press release, the data gleaned from recordkeepers and plan sponsors, as reflected in BrightScope Beacon data, demonstrates that fund selection differs by recordkeeping platform and by retirement plan. This indicates that it is likely that plan sponsors are adopting only the funds that match the specific demographics of their participants. While this level of customization may be ideal for the plan, it raises questions about the future viability of larger target-date fund series.  

“To illustrate this trend, BrightScope data reveals that in one retirement plan, only five out of 12 funds in a target-date series were selected by the plan sponsor. When this trend plays out in the broader marketplace, it leads to varying asset levels across target-date categories. As seen in FRC’s data, 70% of target-date mutual fund assets are held in the five most popular fund categories: 2020, 2030, 2025, 2015, and 2040,” stated Lynette DeWitt, author of the report, in the announcement. “We’ve known already that a few fund categories hold the largest assets, and now we understand why. We anticipate that the less popular funds in a series will remain open to maturity now, but target-date series in the future will be comprised of fewer funds.”  

BrightScope and FRC say the report is the industry’s first-ever examination of the adoption of target-date series on 401(k) platforms. In the report, FRC examines the asset composition of target-date funds in 50,000 401(k) plans, representing 90% of all 401(k) plan assets. FRC also assesses how recordkeepers and plan sponsors use target-date products, reviews product distribution trends, and delivers actionable recommendations for firms seeking to grow their target-date product lines. It also provides a glimpse into the composition of target-date products on investment menus.   

According to the firms, analysis of how target-date funds are distributed by recordkeepers will assist industry observers and research consultants to better understand and assess the 401(k) platform segment. For manufacturers interested in positioning product on recordkeeper platforms, the insights in this report can help craft a targeted strategy.  

“Target date funds have experienced explosive growth in recent years and continue to be a notable bright spot for the mutual fund industry,” said Mike Alfred, CEO and co-founder of BrightScope. “Asset managers who wish to move the needle in this space must have a holistic view in to the marketplace dynamics so they can capitalize on the significant distribution opportunities.”  

The full report is for purchase only, and can be obtained by contacting the FRC sales department at 866-532-8009.