Plans Continue to Embrace Target-Date Funds

A new report says target-date investments of the future are likely to be offered in “multiple flavors″ according to the participant’s risk tolerance.

The report from MassMutual’s Retirement Services Division, Participants Embrace Target Retirement Date Investments, said providers are now developing conservative, moderate, and aggressive portfolios for the same target retirement date. The report examined the use of target retirement date investments as the default option for retirement plans with automatic enrollment.

Plans will also be offering customized versions of the target-date product, but that trend comes with a danger, MassMutual says. “However, customized target retirement investments risk losing one of their prime advantagessimplicity,” the report says.

According to MassMutual, some investment managers have been adding alternative assets, such as real estate investment trusts (REITs), emerging market funds, inflation-protected securities, and commodities to target-date offerings.”Such investments can be risky on their own; however, some money managers say that a judicious use of alternative assets can instead reduce risk in a diversified portfolio, while enhancing returns,” the report notes.

The report indicated a continuation of efforts to build a relevant target-date benchmark is also on the horizon. Current approaches include comparison with Morningstar or Lipper peer groups, a custom peer-group benchmark, a custom index benchmark, and target-date fund indexes, MassMutual said.

“Target retirement date investments will likely continue to grow in popularity among retirement plan providers, along with automatic enrollment programs,’ the report says. “Target retirement date investments offer an easy-to-understand and easy-to-manage approach to retirement saving, especially within the context of automatic enrollment programs.’

The report is available at A free registration is required.

See Target-Date Funds Might Overshoot Equity Target.