A growing number of employers with 401(k) plans are trying to do more to help their workers save for retirement, but often fall short in how they select and evaluate target-date funds, according to preliminary results from Towers Watson's 2014 Defined Contribution survey. 

"The vast majority of plan sponsors selecting TDF offerings focus on investment metrics and not bigger-picture measurements such as retirement success rates or income replacement ratios," Towers Watson said in a summary of its survey. "Investment metrics are important; however, metrics that reflect retirement outcomes represent a more holistic view and should drive evaluation, selection and monitoring of TDFs." 

The good news, on the other hand, is that more sponsors are embracing more complex strategies in order to meet the retirement needs of their participants, according to the study.   

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DC plan structures have historically been built with many single, stand-alone active mutual funds, notes the survey. While the majority of the 457 employers surveyed (60 percent) report their continued allegiance to that approach, the Towers Watson survey found more sponsors are recognizing that it's a path doesn't deliver the best returns. 

Instead, employers are looking at multi-manager, "white-label" options that promote fewer and simpler diversified options. 

Along these lines, customized TDFs, which allow sponsors some say in the design of the products they offer their participants, have either been implemented or are being considered by 49 percent of the sponsors surveyed. 

"A custom TDF series provides the greatest opportunity for plan sponsors to offer a solution best suited to their participants' needs, and the ability to manage around risks and outcomes specific to their plans objectives," write the study's authors. 

That said, the study noted sponsors are failing to take a holistic approach to how they select their TDFs

Most sponsors focus on investment metrics when selecting TDFs, such as the glide paths and fees associated with these investments. 

But only 8 percent of sponsors said they consider "retirement success rates" under different participant draw-down scenarios when selecting their TDFs. 

Metrics like glide paths and fees are important, say the report's authors. But "metrics that reflect retirement outcomes represent a more holistic view and should drive evaluation, selection and monitoring of TDFs." 

That, of course, would mean more work for sponsors, their trustees, administrators and investment teams. 

Increasing the complexity of investments creates governance issues, which may make sponsors more open to delegating at least some plan responsibilities to a third-party RIA. 

So far, the majority of sponsors are keeping these responsibilities in-house. 

Just over half of sponsors of plans with less than $200 million in assets say they prefer to keep everything in-house, while 70 percent of plans with more than $1 billion in assets prefer to keep everything in-house. 

All told, less than one-third of plans of all sizes outsource plan responsibilities. 

But as plan designs become more complicated, the Towers Watson survey suggests, advisors will likely find more sponsors in need of more help.

Looking ahead, Towers Watson said sponsors of DC plans are also rethinking how they approach bond investments, "expanding the opportunity set," and broadening their equity exposure to more global "mandates."

They're also increasingly looking at Treasury inflation-protected securities and real estate investment trusts but are not considering the addition of company stock. 

The Towers Watson 2014 Defined Contribution Survey was conducted in June and July. The full survey results were expected to be released next month.

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Nick Thornton

Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.