Target-date fund options in 401(k) and other retirement plans were hit in a GAO report Wednesday that said the “lack of clear information on investment strategies could put retirees in riskier investments than they were led to believe.”
The Government Accountability Office also recommended that the Department of Labor require further review of target-date fund assumptions and assist plan sponsors in understanding the differences in a fund’s asset allocation and long-term strategy.
The report noted that target-date funds charge fees ranging from 19 to 171 basis points.
The report indicated that participants do not receive a clear explanation about key target-date fund return assumptions, and that target-date funds are not necessarily the best-performing default investment.
“While these new options promised to help workers invest more wisely over a career, GAO’s investigation shows that target-date funds are not all created equally,” Rep. George Miller of California, senior Democrat on the House Committee on Education and the Workforce, said in a joint news release from the Senate Special Committee on Aging and Mr. Miller’s Education and Workforce Committee. “Employers who choose options for their employees and workers building their retirement security need clear and complete information in order to make the best choice. GAO raises serious concerns and highlights the need for employers to undertake a higher level of due diligence in order to fulfill their duties under the law to act in best interest of workers.”
Among the largest 2010 target-date funds, returns over a five-year period ranged from an annualized loss of 30% to a gain of 28%, according to the report.