Understand Target Date Funds to Choose the Best Fit

Say it’s 2008 and your 63 year old participant selects or defaults to a 2010 target date fund—dated for age 65 retirement. One 2010 fund may result in 2008 and 2009 performance of -41% and +23% while another may result in -7% and +9%.

Why the difference? Each target date fund series has a different strategy and thus allocates differently to equity and income, among other things. Such strategies include equity or conservation (capital preservation) bias, and to-retirement or through- retirement allocation styles.

What’s the point? Under ERISA you have a fiduciary liability to understand the series you choose for your plan and to educate your participants so they know what they’re getting.

Your plan provider and adviser can help you understand available target date options and your advisor should counsel your participants on choosing the fund most suitable for their financial situation, risk tolerance and retirement objectives.

If you are not getting insights like this from your current plan advisor give us a call.