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Target-date funds: Know the risk

November 17th, 2011 Leave a comment Go to comments

By jeremy.engdahl-johnson

An article at Workforce.com looks at the growing popularity of target-date funds. These funds have proven to be useful retirement vehicles for many plan participants, but they are not without certain risks. Here is an excerpt from the article:

For plan sponsors considering a target-date fund, knowing whether the fund goes to or through retirement is critical, experts say. Funds that go to retirement hit their most conservative asset allocation near the retirement date, while through funds don’t hit their most conservative point until after the fund date name.

“Plan sponsors really need to have a good understanding of what they have so they can clearly communicate and monitor” their target-date funds, says Jeff Marzinsky, principal and investment consultant for Milliman in the consulting firm’s Albany, New York, office. “If participants aren’t aware [of the type of plan they are in], they may be taking more risk than they thought.”

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