Target date funds (TDFs) are characterized as either proprietary or custom. The U.S. Department of Labor encourages plan fiduciaries to consider a custom solution. Custom TDFs are typically offered in separate account or collective trust vehicles. These vehicles are not registered as investment companies under the Investment Company Act of 1940 and therefore are precluded from use in 403(b) plans. Proprietary TDFs are defined as pre‐packaged investments that usually are comprised of underlying mutual funds of a single investment firm. Therefore, it can be challenging to ensure “best in class” managers are offered across the underlying funds within the proprietary TDF. Morningstar, Inc., a leading investment analysis firm, considers it a best practice for target date managers to continually assess the stand-alone merit of each underlying fund used within their target-date series. Custom TDFs are created by the retirement plan sponsor, who ultimately becomes responsible for choosing the...

The U.S. Department of Labor's Employee Benefits Security Administration issued tips intended to help plan sponsors select and monitor target date funds (TDFs) in their investment lineups. These target date fund basic definitions will help plan fiduciaries navigate the Department of Labor Tips for ERISA Plan Fiduciaries. Asset classes  are groups of securities that exhibit similar characteristics. The three main asset classes are equities (stock), fixed-income (bonds), and cash. Additional asset classes that may be employed within a target date fund are: world bond, emerging markets, and/or real assets like commodities and real estate investment trusts (REITs). Risk  is the probability or likelihood that an investment’s actual return will be different from the expected return. This includes the possibility of losing some or all of the original investment. Volatility  refers to the relative rate at which the price of a security ...

In 2013, the U.S. Department of Labor’s Employee Benefits Security Administration issued tips intended to help plan sponsors select and monitor target date funds (TDFs) in their investment lineups. It is incumbent on plan fiduciaries to establish a process or fiduciary best practice for comparing and selecting target date strategies, especially when they serve as the plan’s Qualified Default Investment Alternative (QDIA). Fiduciaries should implement a process to perform periodic reviews to have a clear understanding of the investments and how they will change over time, and to compare the funds’ fees. Target date funds automatically adjust their asset mixes to become more conservative as investors approach retirement age. This shift in the asset allocation over time is called the TDF’s glide path. Some TDFs’ glide paths are managed “to” retirement, while others are managed “through” retirement. Risk Level at Retirement Comparison of “ to ” versus “ through ” funds © 2015 Morningstar...

The U.S. Department of Labor's Employee Benefits Security Administration issued tips intended to help plan sponsors select and monitor target date funds (TDFs) in their investment lineups. These target date fund basic definitions will help plan fiduciaries navigate the Department of Labor Tips for ERISA Plan Fiduciaries. Target date funds  automatically adjust their asset mix to become more conservative as an employee gets closer to his or her target retirement date. QDIA  is a default investment option chosen by a plan fiduciary for participants who fail to make their own investment election. The Pension Protection Act of 2006 approved target date funds as a QDIA. Glide path  refers to the target date fund’s shift in asset allocation over time. Fiduciaries should understand the target date fund’s glide path and be comfortable that it is appropriate for their participant demographics. Fiduciaries should know whether the glide path u...

The Pension Protection Act of 2006 (PPA) encouraged employers to adopt automatic enrollment features for their participant‐directed plans by providing a new type of fiduciary liability relief for “default investments,” or Qualified Default Investment Alternatives (QDIAs). A QDIA is used when a participant fails to make his or her own election. An investment must have specific qualifications to be considered a QDIA. Importantly, a QDIA’s asset allocation strategy need only take into account participant age, and does not need to consider an individual participant’s risk tolerance or other investment assets. The three general categories that may be used for a QDIA are life‐cycle or target date funds (TDFs), balanced funds, or managed accounts. Target retirement date funds have overwhelmingly become the favored QDIA choice among fiduciaries.  Target date mutual fund assets grew to $763 billion by December 31, 2015. In 2015, $69 billion in net new monies were invested into the funds. Th...

As target date funds continue to garner a significant portion of retirement plan assets, it becomes increasingly important for plan fiduciaries to establish a process for comparing and selecting target date strategies. HANYS Benefit Services has created a Fiduciary Checklist for Target Date Fund Decisions . Download the attached checklist to help plan fiduciaries stay compliant and feel confident they are following the Department of Labor Tips for ERISA Plan Fiduciaries. If you have any questions, or would like to begin talking to a retirement plan advisor, please get in touch by calling (800) 388-1963 or e-mail us at h bs@hanys.org .

To assess plan health, comprehensive Annual Plan Reviews continue to be of value, and plan providers are developing more concise versions of the report — offered on paper or online. According to the Lincoln Financial Group study, You are here: Understanding financial wellness, retirement readiness and plan health , plan sponsors use plan health data to get quick, timely updates on employee retirement preparedness levels and to help meet their goals by leveraging data to make informed plan design decisions. Next steps for plan sponsors Review year-over-year trends to identify patterns and opportunities. Compare your plan by industry, asset size, and number of participants to set competitive goals. Work with your provider to optimize participant data to help limit assumptions and provide more accurate reporting. Continue to monitor traditional success measures — balances, contribution rates and diversification — while adding new metrics, such as income replacement rates. Work with your p...