Exactly what those metrics and strategies are—and how to establish them—form the subject of a Russell Investments white paper dubbed “Evaluating target date investment performance.” In the paper, researchers urge investment committee members to separate investment performance measures and participant success to ensure the focus remains on employee outcomes. Other key considerations include showing skepticism towards peer-relative performance evaluation and ensuring glide paths have been reviewed independently.

Researchers also outlined what they called the four TDF performance drivers critical for investment committee members to consider when making plan decisions. These include a fund’s market risk exposure by age, strategic positioning, tactical positioning and security selection features.

While the first measure, also known as a plan’s glide path, is a long-term consideration and therefore difficult to judge directly against a single benchmark, the other three performance drivers can be evaluated using two theoretical benchmarks outlined in the white paper. These are called the “simple benchmark” and the “composite benchmark.”

The simple benchmark, according the paper, is based on two indexes that are combined to mirror a target date portfolio’s total allocation to growth assets (equities, commodities, etc.) and capital-preservation assets (core bonds, Treasury Inflation-Protected Securities, etc.). The result is a benchmark that can provide a passive representation of the two broad asset categories most frequently defined in a glide path.

The composite benchmark, on the other hand, is developed by rolling up the respective indexes representing each asset class available in a TDF and weighting those to the portfolio’s strategic asset allocation. Thus the return associated with this type of benchmark is designed to isolate the value added or detracted from active security selection, tactical shifts, rebalancing, fees and fund-level transaction costs, according to the paper.

Together, the two benchmarks can provide insight into a TDF’s performance. For instance, when comparing the performance metrics of the composite benchmark to those of the simple benchmark, the composite benchmark should be doing better on a risk-adjusted return basis if the asset allocation decisions of the TDF managers are actually adding value.

A full discussion of how to use these benchmarks, as well as the paper’s other suggestions to DC investment committee members, is available here.