Retirement plan participants are often told that target date funds (TDFs) are a “set it and forget it” investment. Many sponsors have similar feelings when selecting a TDF series. Still, it is important for them to constantly monitor the fund series subsequent to its initial review. Sponsors need to focus on fees, asset allocation along the glide path, performance, and expenses. Looking at a combination of indexes and peer groups can offers sponsors better perspective on a suitable investment philosophy.
Plan Sponsor recently published an article focusing on four areas to revaluating TDFs. In the following excerpt from the article I discussed the importance of reviewing a fund’s investment strategy.
That sort of analysis is especially important because some target-date funds have made significant changes in recent years. Look for issues such as alterations to the glide path, a move from active management to enhanced index or indexing strategies, or switches in the underlying funds, suggests Jeff Marzinsky, a principal at consultant Milliman Inc. in Albany, New York. He has seen sponsors actually replace their target-date funds, mainly in cases of investment underperformance or changes in the funds’ underlying philosophy.
I also provided perspective regarding an increased interest in custom target date funds, which offer sponsors control over investment options and asset allocation changes.
…It may be less about many having an employee base different enough to warrant a custom glide path than sponsors seeing it as “a better way to pick the investments,” because sponsors have more control than with off-the-shelf funds.
In a prior article, “Considerations in choosing a target date fund,” I explored some key aspects of TDFs and issues plan sponsors should bear in mind when selecting and the ongoing monitoring of a TDF series.