Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Defined Contribution East
    • 2023 ESG Investing
Breadcrumb
  1. Home
  2. DEFINED CONTRIBUTION
March 06, 2017 12:00 AM

Scrutinizing target-date funds

  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Roger Schillerstrom

    Defined contribution sponsors must strengthen their plans and participant education for the challenges ahead.

    The equity markets have been good to 401(k) and other DC plans, raising assets for many participants to record levels.

    Since the nearly 39% drop in the S&P 500 in 2008, the final full year of the financial crisis, the market has risen every year, mostly in double-digit returns, except for a slight dip in 2015.

    The market rise has continued since Donald Trump's election. But reality of recent optimism must be based on results of a growing economy, which has yet to materialize. Real gross domestic product is positive, but still weak, up a 1.9% annualized rate in the fourth quarter, according to the Bureau of Economic Analysis of the Department of Commerce. For all of 2016, real GDP was up 1.6%, compared to 2015's 2.6%.

    Of course the market looks to the future, not the past. First-quarter results should give an indication of how well the Trump effect is boosting economic activity since taking office Jan. 20 and underpinning a rising market.

    During the previous eight years, market returns were underpinned by the Federal Reserve's policy of setting short-term interest rates, ranging between zero and 25 basis points, which kept long-term rates at artificially low levels. It was a policy grounded in a financial emergency, trying to stabilize the economy, while encouraging a recovery. The result was a growing but weak gross domestic product.

    Asset owners and other institutional investors wanted stability, not animal spirits, which became characteristic of the early 2000s with extreme risk-taking, resulting in the financial market collapse. They wanted to restore their confidence in the markets. The policies achieved those aims.

    Now the financial and economic emergency is over. Asset owners and other institutional investors are restless for faster growth in the economy, activity that would produce economic results and not just shorter-term federal policies underpinning optimism and a rising market.

    Still, revived animal spirits as exhibited by institutional investors in the past three months exposes the stability in the economy and markets to increased risks. A downturn would upend the achievement the market has achieved in stability and restoring confidence.

    And that risk is what DC plan executives must address.

    Among other issues, defined contribution plan sponsors should pay particular attention to target-date funds because of their increasing popularity, often accounting for a higher allocation than any other investment option. Sponsors that include them in their plans need to assess target-date funds for their risk and clarity of underlying assumptions, as do participants who allocate assets to them. A 2009 congressional special committee on aging investigation found “it is currently unclear whether investment firms are prudently designing these funds in the best interest of the plan sponsors and their participants.” It “found significant differences in the asset allocations and equity holdings within these funds, raising questions about whether plan sponsors and participants understand the underlying assumptions and risk associated with these products.”

    Have those concerns been allayed? Have target-date funds improved disclosure of assumptions and allocation glidepaths designed to reduce risk as participants age? Should glidepaths of target-date funds be the same? Have sponsors strengthened education programs to bolster participant understanding of assumptions and risks and glidepaths?

    These are among questions executives must address as the market enters a new economic era, keeping in mind all investment risk is carried by defined contribution plan participants.

    Related Articles
    Record keepers lose hold on target-date offerings
    DOL: Target-date funds with annuities can now be a prudent default
    Target-date funds continue their winning ways
    Prospects brightening for target-date funds as U.K. market evolves
    Will any QDIA do? Fiduciary duty says otherwise
    University of North Carolina seeks passive target-date fund provider for DC pla…
    Target-date funds: Same destination, different (glide)paths
    Target-date funds continue downward fee trend in 2016; assets rise 15%
    Recommended for You
    A handful of $100 bills
    Seneca County moving participants in 457 plan to state deferred comp plan
    parliament 1550_i.jpg
    U.K. considers CDC model for multiemployer plans
    British-Union-Jack-Parliament_i.jpg
    New U.K. regulations allow DC plans to increase illiquid investments
    The Institutional Investor's Guide to ESG Investing
    Sponsored Content: The Institutional Investor's Guide to ESG Investing

    Reader Poll

    January 25, 2023
    SEE MORE POLLS >
    Sponsored
    White Papers
    Show Me the Income: Discovering plan sponsor and participant preferences for cr…
    The Future of Infrastructure: Building a Better Tomorrow
    Outlook 2023: Opportunity in a volatile world
    Research for Institutional Money Management
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Defined Contribution East
      • 2023 ESG Investing