"I think the objectives should be, 'don't lose a participant's money.' Nothing has changed since 2008," Surz added.

When the market crashed, individuals who were invested in target-date funds lost 40 percent or more of their retirement savings and many were left questioning what happened.

Target-date funds were first introduced in the 1990s, but in recent years they have gained in popularity because they are designed to invest in more conservative options as people get older. Investments are more aggressive and lean heavily toward equities when people are young and slowly migrate to bonds and fixed income options when they near retirement.

This all sounds good on paper, but when the market crashed, everyone found out that there is no rhyme or reason as to how TDFs are set up. People who were invested in 2010 target-date funds, who should have been protected by then with more conservative investments, found that they still had 60 percent or more of their retirement assets in the stock market. They took a major hit and it is hard to regain those assets when a person is only two years away from retirement.

Different companies that offer TDFs have different philosophies. Some believe individuals should remain heavily invested in stocks through retirement. Others believe the portfolio should be more heavily weighted toward conservative investments rather than stocks by the time a person hits their retirement age.

The U.S. Department of Labor and the Securities and Exchange Commission were taken unawares when the crash happened and the SEC opted last year to shine more light on the different glide paths offered through TDFs and which ones would be the safest bet for most investors, particularly those who are automatically defaulted into this type of investment through their employer-based 401(k) plans.

Jake Adamczyk, associate vice president for Aurum Wealth Management Group in Cleveland, Ohio, agrees that something needs to be done in this area, especially if TDFs are going to continue to be used as qualified default investment alternatives, but until there is a better solution, he is in favor of leaving them in place.

"The alternative is employees or participants investing on their own and all the studies done, all the research says professional guidance is better than folks doing it by themselves," Adamczyk said.

He believes there are better, customized risk-based alternatives out there, but they are not in the mainstream yet. Most QDIAs tend to be age-based rather than risk-based.

Adamczyk does believe something needs to be done to make target-date funds more consistent. Right now, a person with a 2030 target-date fund—a fund that estimates the person will retire in 2030—has an average of 70 percent equity in their TDF currently, but other 2030 funds have as little as 20 percent.

"In our mind, that's too broad of a range. You're basing someone's retirement assets strictly on which fund company they chose. The participant doesn't have a choice. That's the plan sponsor's responsibility and the investment committee's to choose what that is," he said.

Most plan sponsors pick the TDF of their current plan provider, usually Fidelity, Vanguard and T. Rowe Price, to name the big three, but that isn't necessarily bad. What is a problem is that plan sponsors don't do more research into the target-date funds themselves. They need to determine if that TDF is the best option for their employees, he said.

One big change that began recently is that the larger 401(k) providers have started offering access to the TDFs of other companies.

"To have that optionality is key," Adamczyk said. "When you think about uniformity and making things more transparent, it is difficult from the investment side because you are going to have to pick 20 different fund companies offering TDFs. If all 20 companies offer the same, more or less, allocation, what's the value add of one over another? Then it becomes the question are they being used in plans because they are the right solution or are they the products collecting the most assets for the (providers) companies."

That goes back to what Surz was saying. Retirement plan fiduciaries need to make sure they know the main objective of their TDF. He points out that capital preservation is the universal objective of TDFs.

"It's the one objective we all have in common. Of course we all want to earn as much as we can, but we are most impacted by loss as we near retirement," he said. "The presumption for target-date fund design near the target date should be that participants have saved enough to support a lifestyle that is acceptable to them."

Before passage of the Pension Protection Act of 2006, the most common investment default was cash, but now "the risk pendulum has swung too far for those nearing retirement," Surz said. "2008 is all the proof we need."

Fiduciaries need to "embrace the capital preservation objective and reject the hopes that are currently being sold," Surz added. "A hope is an objective without a reasonable course of action. Replacing pay and managing longevity risk are hopes because no glide path can realistically be expected to achieve these objectives; rather, saving enough is the right course of action."

Surz says he hasn't given up on target-date funds. "They could be such a great product. In terms of diversification, they are ho hum. Mostly U.S.-centric. The risk controls haven't changed since 2008. In some ways they've gotten worse. Long-term bonds are worse with the low interest rates so risk has increased at the target date."

Adamczyk said that at the end of the day, what the Department of Labor would like to see is a mix between a defined contribution plan of today and a defined benefit plan of yesteryear.

"Obviously companies don't want to take on the risk of having pensions or potentially unfunded liability on their balance sheet, but employees are asking for help, asking for them to set aside money for retirement," he said.