Target Dates Surge, but Questions Linger

Perhaps not surprisingly, there has been significant movement toward adopting target-date funds as a default investment for automatic enrollment.

In fact, nearly half (44.3%) of the respondents to PLANSPONSOR‘s 2008 Defined Contribution Survey, compared with 33.3% a year ago, before final regulations on qualified default investment alternatives (QDIAs). Still, some might argue that that result is “not as much as you might think” (however, risk-based lifestyle funds, which also are a QDIA-eligible option, nearly doubled—from 8.1% a year ago to 14.1% of the 2008 responses).

On the other hand, while more than half (58.3%) of the nearly 6,000 plan sponsor respondents said they felt that their recordkeeper was offering the most appropriate target-date funds available, an astounding 37.9% admitted that they were “not sure” (the remaining 4% were more blunt in their assessment).

Most respondents (61.7%) said their investment policy statement does not specifically address target-date funds, even though the vast majority (93%) said they thought that those options should be held to the same standard as other funds on the plan menu.

Nearly two-thirds said they believed their fiduciary risk was increased by offering a target-date fund that would not pass the standards set by their IPS for their normal fund lineup, and more than two-thirds were at least somewhat concerned about litigation resulting from auto-enrolling participants into funds that did not meet IPS muster.

Still, while more than half (60%) said they evaluate each fund in the target-date series when they adopt the series, nearly as many (56.9%) said that, if a fund in the series didn’t meet those IPS standards, they would “do nothing.”

The vast majority (nearly 93%) of respondents would not consider re-enrolling 100% of their plan assets into their current target-date funds; more than half of those who would said it was because the move would be “good for participants,” but a clear plurality (38.9%) of those who would not contemplate the change said that the move would be “bad for participants.”