Choose the right vehicle and support

Your target date objective, glidepath strategy and asset allocation are the most important elements in driving investment outcomes. But the way you decide to deliver target date funds to your participants can also have an impact on participants' savings and outcomes over time.

Index or active management

Deciding whether to implement index or active management depends in part on your investment philosophy. Do you have a conviction that active management can generate better-than-market returns over time, or do you believe that capturing the market as efficiently as possible is the best way to generate long term returns? Or do you believe a mixture of active and index management makes the most sense?

Strategic or tactical management

Glidepaths are typically based on long term strategic economic forecasts. Allowing adjustments to the glidepath to capture near- term market movements can add returns, but can introduce additional risk. If you are exploring tactical glidepath or asset class management it is critical to understand how, why and when adjustments can be made – and whether the approach makes sense for your objective.

Collective trust funds or mutual funds

Collective trust funds (CTFs) leverage economies of scale and can reduce expenses for DC plans of sufficient size. CTFs agreements may also permit a wider range of instruments and strategies than some mutual funds. On the other hand, mutual funds offer additional transparency that makes them the preferred choice for many larger plans.

Special Investment or Participant Needs

Unique participant demographics or specific investment beliefs may be addressed through customization, or through the addition of specialized asset classes. Guaranteed retirement income can also be generated through specialized solutions.

Bottom Line:

Adding a target date fund, or changing target date fund providers, can be a complex process that requires unwinding existing agreements, transferring assets and setting expectations for participants. Clearly define your investment beliefs and choose a target date fund provider who can support your goals efficiently.

Action Step:

Select a team that understands your needs and objectives, and can proactively bring perspectives and expertise to the table you cannot find in-house.

Print & Go Resource

Thumbnail: Target Date Funds: The Essential Guide

Target Date Funds:
The Essential Guide

Investing involves risk, including possible loss of principal.

The target date at the end of the name designates an approximate year in which an investor plans to start withdrawing money. The blend of investments in each portfolio is usually determined by an asset allocation process that seeks to maximize assets based on an investor's investment time horizon and tolerance for risk. Typically, the strategic asset mix in each portfolio systematically rebalances at varying intervals and becomes more conservative (less equity exposure) overtime as investors move closer to the target date. The principal value of the funds is not guaranteed at any time including the target date.


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