Target Date Retirement Funds–Tips for ERISA Plan Fiduciaries

In my last post—about the selection and monitoring of target date funds (TDFs), I said that I would also discuss the DOL’s recent guidance on that subject… here it is.

Earlier this year, the DOL published “Target Date Retirement Funds—Tips for ERISA Plan Fiduciaries.” You should read the full Tips (at http://www.dol.gov/ebsa/pdf/fsTDF.pdf), but here are a few key points:

  • It is important that fiduciaries understand the asset allocations, glidepaths and expenses—and compare them to other TDFs. How many fiduciaries do that?
  • In selecting a TDF suite, fiduciaries should consider their participant demographics and other factors, for example, participation in other plans (e.g., pension plans or ESOPs), salary levels, turnover rates, contribution rates and withdrawal patterns. In other words, there is no such thing as a “one-size-fits-all” TDF. How many fiduciaries do that?
  • Plan sponsors are encouraged to consider “custom” TDFs. That would include managed accounts and asset allocation models. These vehicles have the advantage of being designed to consider the particular needs and demographics of the covered workforce.

The point of my italicized questions is that there is a significant gap between what the DOL expects plan fiduciaries (eg, plan committees) to do… and what they are actually doing. As a general premise, these kinds of “gaps” are usually red flags, and those flags are signaling changes to plan sponsors.

Of course, the DOL says more than that—and explains it in more detail. This post is just an “appetizer.” Read the Tips.

The material contained in this communication is informational, general in nature and does not constitute legal advice. The material contained in this communication should not be relied upon or used without consulting a lawyer to consider your specific circumstances. This communication was published on the date specified and may not include any changes in the topics, laws, rules or regulations covered. Receipt of this communication does not establish an attorney-client relationship. In some jurisdictions, this communication may be considered attorney advertising.

The views expressed in this article are the views of Fred Reish, and do not necessarily reflect the views of Faegre Drinker.

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