PSNC 2011: The “To” Versus “Through” Debate

Since the market downturn of 2008, there has been increasing debate on whether target-date funds (TDFs) should take retirement plan participants “to” retirement or “through” retirement.

Scott Brooks, Head of U.S. Retail Client Relations and Business Development, RREEF, the real estate subsidiary of Deutsch Bank, told attendees at the PLANSPONSOR National Conference there is no right or wrong answer; sponsors must figure out what is right for their particular plan and circumstances.  

Glenn Dial, SVP, Head of Retirement Product Business Development, Allianz Global Investors Distributors LLC, says there is no clear definition of which funds are “to” and which are “through,” However, as a general rule, a “to” fund would be one with the least risk and least equities at the retirement date, and a “through” fund has more risk and equities at the target-date.  

Dial suggested some questions plan sponsors should ask in the “to” versus “through” decision: 

  • What is the purpose of your defined contribution plan, is it to accumulate assets or is it a decumulation vehicle,  
  • What are your goals, do you want participants to take money at retirement or leave their money in plan, 
  • What do your plan participants actually do,  
  • Does your recordkeeper/administrator have the capability to cut monthly checks if participants leave their money in the plan and draw an income stream, 
  • Do participants have knowledge of how to draw down their account,  
  • Do most participants have the ability to handle market sequencing risk, will they stay in the fund and ride out a downturn or panic, and 
  • Are other retirement plans offered? If a sponsor has a defined benefit plan, Dial contends, it may be able to use a “through” fund because participants can take more risk.

When solving for which type of target-date fund is most appropriate, sponsors must look at the prevailing circumstances of today. From a product standpoint there are now about 33 different target-date fund series that have at least a three-year track record, compared to about 10 three years ago. There are also new Qualified Default Investment Alternative (QDIA) rules. Sponsors are always going to be held to the prevailing standard. Dial says now is good time for those who already use a target-date fund to go back and assess whether it’s appropriate.

Brooks pointed out that the average pension plan has about 20% in alternative assets, 50% in equities and 30% in fixed income, and very broad exposure to the asset classes, which creates better results. But, data from ICI shows a typical target-date glidepath with no mention of alternatives. He suggests that, especially for larger plan sponsors, custom target-date funds should be considered. Sponsors can customize for “to” versus “through” and enhance diversification. It requires more work but can more likely get funds perfect for the plan, Brooks said.  

He predicts that new products will embrace alternative asset classes, and will continue to the point they will look more like a pension investment strategy, using open architecture with multiple asset managers. 

Steve Bleiberg, President and Chief Investment Officer, Legg Mason Global Asset Allocation, argues that a 65-year-old may still live another 20 years, so why be conservative. For example, in 529 college savings plans, kids that have almost 20 years to college are invested 80% in equities; it’s the same amount of time.  

He says the glidepaths of “to” and “through” funds don’t need to be different in the years leading up to the target-date. He notes that ‘to’ investors are really worried about a market decline in years close to retirement, while “through” investors don’t have to worry so much because the market tends to bounce back.   

So, a sponsor may adopt a “through” fund, and the task is to protect downside risk in the last few years to help “to” investors. Sponsors can implement a dynamic risk management process, set a floor and follow an algorithmic process to ensure they don’t go above floor. They can stick to the glidepath, but take out funds if investments are doing badly. They may get off the glidepath and have assets in cash.  

Audio of the panel discussion will be available at