Bullseye: Are your Target Date Funds Hitting the Mark?

Transcription

1 Bullseye: Are your Target Date Funds Hitting the Mark? Staying up to speed with suggested guidelines from the Department of Labor on selecting target date fund investments Copyright 2013 Ascende, Inc. All rights reserved. No part of this document may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic, mechanical or otherwise without the prior written permission of Ascende, 0 Inc.

2 Target Date Funds - History March First target date funds introduced Wells Fargo & Barclays Global Investors first to market Created in response to allocations that participants did not allocate properly Pension Protection Act of 2006 Target date funds are introduced as a Qualified Default Investment Alternative (QDIA) for defined contribution plans Asset Growth : $0 $15B : $15B $179B : $179B $503B Number of target date fund families 2005: : 36 1

3 Target Date Funds - History How did most plan sponsors choose target date funds? Record Keeper: Fidelity T. Rowe Price American Century Charles Schwab Vanguard JP Morgan Target Date Fund Suite: Fidelity Freedom Funds T. Rowe Price Retirement Date Funds American Century One Choice Portfolios Schwab Managed Retirement Trust Funds Vanguard Target Date Suite JP Morgan Smart Retirement Funds 2

4 Target Date Funds - History How do plan sponsors choose target date funds today? Record Keeper: Fidelity T. Rowe Price American Century Charles Schwab Vanguard JP Morgan Target Date Fund Suite: Fidelity Freedom Funds T. Rowe Price Retirement Date Funds American Century One Choice Portfolios Schwab Managed Retirement Trust Funds Vanguard Target Date Suite JP Morgan Smart Retirement Funds 3

5 Target Date Funds - History No set of target date funds is the same Fidelity T. Rowe Price Vanguard J.P. Morgan American Century PIMCO To or Through Through Through Through To To To Total Assets ($mm) Age Where Glide Path Ends Equity Allocation in 2010 Fund $142,133 $89,412 $190,854 $23,586 $8,034 $ % 5 35% 45% 4

6 Which Glide Path is More Aggressive? Equities Fixed Income & Cash Equities Fixed Income & Cash 5

7 Which Glide Path is More Aggressive? International Equity US Equity International Equities US Equities Fixed Income & Cash Fixed Income & Cash 6

8 Which Glide Path is More Aggressive? International Large Emerging Markets International Large Emerging Markets US Small Cap Equity US Large Cap Equity US Small Cap Equities US Large Cap Equities Fixed Income & Cash Fixed Income & Cash 7

9 Which Glide Path is More Aggressive? International Large Real Estate Mid Cap Equity Absolute Return TIPS Emerging Markets US Small Cap Equity US Large Cap Equity Intermediate Bond Cash Gold Emerging Markets US Large Cap Equities Intermediate Bond Short Duration Bonds International Large US Small Cap Equities Emerging Market Bonds TIPS Cash 8

10 Which Glide Path is More Aggressive? Most individuals are unaware of the underlying investments in a target date fund. The equity to fixed income ratio can vary significantly from one target date provider to the next. Reviewing the asset allocation of the target date provider your plan offers, versus the competition, on a regular basis is a vital step in managing your fiduciary responsibility. 9

11 Here Comes the Department of Labor In 2013, the Department of Labor released eight tips on target date fund selection. 1. Establish a PROCESS for comparing and selecting target date funds 2. Establish a process for the periodic REVIEW of selected target date funds 3. UNDERSTAND the fund s investments: the allocation in different asset classes, individual investments, and change over time 4. Review the fund s FEES and investment EXPENSES 5. Inquire about whether CUSTOM or non-proprietary target date funds would be better for your plan 6. Develop effective employee COMMUNICATIONs 7. Take advantage of available sources of INFORMATION to evaluate the funds and recommendations received 8. DOCUMENT the process 10

12 #1 Establish a Process for Selection Plan fiduciaries should analyze target date funds in the same fashion as choosing a record keeper. DO: Go in with an open mind Have a set list of items to review and compare Know your participant behavior and where their money is currently Think like an employee DO NOT: Go with the first target date suite provided without doing research Rely solely on what the sales person says Is your target date fund suite appropriate for your participant demographic? 11

13 #2 Establish a Process for Review Once the target date suite is in the plan, the work is not over. DO: Review the following at least annually Monitor fees Glide path Asset classes used Performance of underlying funds Management team DO NOT: Set it and forget it How would a change in fund suite philosophy alter your perception of the funds? 12

14 Conclusion For more information on the Department of Labor s tips on target date funds, or to learn how Ascende can help you manage your fiduciary responsibilities regarding target date fund selection, contact Ascende s retirement director Rob Massa at rmassa@ascende.com or Ascende Wealth Advisers, Inc. was recently named one of PLANADVISER s 2014 Top 100 Advisers in America. 13