Ten years ago, target date funds (TDFs) were just another investment option in a defined contribution plan. However, since the Pension Protection Act (PPA) solidified TDFs as a qualified default investment alternative (QDIA) in 2006, they have become the default of choice.
If you offer employees target date funds in your plan line-up (or are planning to), here are four things you need to know:
- It’s a fiduciary duty to conduct target date fund due diligence, just as it is with all funds in your line-up. However TDF due diligence is particularly important since so many participants make a TDF their only investment choice.
- There are three key actions to perform in order to satisfy fiduciary requirements for target date fund due diligence:
- Establish an investment selection process for comparing and selecting TDFs.
- Establish a process for periodic investment review, including all fees and investment expenses.
- Document the process and results.
- As long as participants are given proper notice and provided with an opportunity to make an alternative election, you enjoy fiduciary protection and safe harbor when enrolling participants into a QDIA.
- Understand that not all TDFs are created equal in terms of investment philosophy, glide paths and costs and the differences can have a significant impact on whether or not participants reach their retirement savings goals.
TDF popularity is a good thing. Having assets in professionally managed, well-diversified target date funds can increase long-term rates of return for participants and improve overall retirement readiness. As a plan sponsor, the choices you make can help improve participant retirement outcomes for all employees. Therefore, it’s critical to know the facts, understand the rules, and make the right choices for your plan and participants.
Blue Prairie Group can help
We perform thorough due diligence on the target date funds in your plan. We look at plan sponsor preferences, participant demographics and investment expertise to provide you the help you need with TDF due diligence and selection report. We help develop a process for on-going TDF monitoring and provide IPS language and documentation for your fiduciary file.
We also offer our invaluable Annual Plan Health Report. It measures the overall effectiveness of your plan investments, design and other critical areas important to employees reaching retirement readiness. This proprietary evaluation process helps you ask the right questions to increase your overall plan health score through smart plan design. It’s a proven process with measurable results.
Contact us today for help with TDF due diligence and to find out how your plan health measures up!