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Thin(k) About Your 401(k) Plan: Target Date Funds – 401(k) Plan’s Investment Choice

Targeted Date Funds (TDFs) are clearly here to stay with more and more 401 (k) Plan Participants using them as a primary investment option.  Vanguard’s recently release report, How America Saves 2020 shows that 80% percent of participants use TDFs when offered them, and that’s up from 70% in 2015.

TDFs can also work as a Qualified Default Investment Alternative (QDIA). A QDIA is where a participant’s money is invested if he fails to designate an investment election.  ERISA provides certain fiduciary relief to Sponsors if defined conditions are met when choosing a QDIA.  In general, TDFs satisfy those conditions.  To learn more about QDIAs, the Employee Benefits Security Administration offers a good explanation here.

Vanguard’s report offers further evidence for TDFs’ increased popularity. For instance, of the 62% of participants using a single fund option, 88% chose a TDF.  That means 54% of all participants use only a TDF.

 

Source: How America Saves 2020

It is obvious that Sponsors and Participants have embraced TDFs.  As a result, participant retirement outcomes have much riding on the success of the TDFs.

When is the last time you reviewed the performance of those funds?

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