Target date funds reflect that flexibility and engagement have become firmly entrenched aspects of retirement plan management for both participants and plan sponsors. In a NAPA webinar, “Target Date Trends and Evaluation,” T. Rowe Price’s Jerome A. Clark discussed how TDFs reflect greater discretion over how funds are managed.
Reducing fees, increasing transparency and boosting control and flexibility are the reasons Clark cited for using custom TDFs — variations on traditional TDFs that allow a plan sponsor to choose asset classes and funds to use, and whose glide path guides the allocation of those assets and funds. He added that the ability to address underperforming investments is another reason plans use custom TDFs, but also noted that T. Rowe Price has found no difference in performance between custom TDFs and funds that are indexed.
Clark said that large companies, employers that manage their plans themselves (not through a TPA) and employers with DB plans are most likely to turn to custom TDFs. Their use is growing, he said, but at a slower pace than T. Rowe Price had expected.
The ability to decide whether a TDF can be said to be “to” or “through” also reflects greater flexibility. Clark said that T. Rowe Price has found that since 2008, more plans are using “to” TDFs — whose allocation can seek immediate return and become more conservative as the fund reaches its target date — than “through” TDFs, which are focused on providing lifetime income.
T. Rowe Price also has found that there has been a pronounced increase in the use of passive retirement products. Clark attributed this to their simplicity, the fact that plans that use them pay lower fees and that market returns are easier to explain for passive funds.
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John Iekel is Senior Writer at ASPPA, as well as Editor of the ASPPA Net and NTSA Net web portals.
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