Joe Ready, head of Wells Fargo Institutional Retirement and Trust, says the new approach is a hybrid between traditional TDF design and managed accounts.

“Technically, Target My Retirement uses the managed account engine behind the scenes to provide the personalization, but in terms of the participant experience, it offers the straightforward, easily understood approach of a target date product,” said Ready in an interview.

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“We know the value of target date funds, and the value of managed accounts. We identified an opportunity in the middle that incorporates some of the best features of both and is a natural evolution of target date funds, with more individualization,” added Ready.

TDFs have arguably been as significant of an evolution in the 401(k) industry as any over the past decade. The Pension Protection Act of 2006 paved the way, assigning them qualified default alternative investment status. Now, TDFs hold as much as $700 billion in retirement assets.

But they are not without their critics. Some industry watchers have said they lack the necessary customization to specific participant needs. By setting an age-based glide path, TDFs fail to consider how one worker’s saving needs may be different from another’s of the same age, argue some.

The Target My Retirement approach builds on established target date allocation practices, but customizes a specific strategy by incorporating factors like gender, salary, contribution rates and total assets to set an investment approach that intends to replace 80 percent of salary in retirement income.

That may sound like the workings of a managed account in theory, but Ready says there is a main distinction.

That personalized information will be gleaned without participants’ input, which is typically required in managed accounts.

Which is to say that participants will have access to more personalized strategies without having to take any initiative. Think of it as lazy man’s managed account, says Ready.

“This is a main point of Target My Retirement and why we view it as a next generation offering,” said Ready. “It takes the best of TDFs and managed accounts and combines them into one product.”

Morningstar will partner with Wells to construct each participant’s portfolio. Social Security estimations will be taken into consideration. Accounts will be rebalanced quarterly, said Ready, or potentially more often if a participant enters outside information, changes their contribution rate or the year they plan to retire.

In the program, participants don’t invest in a fund with a strategy fixed to glide path, such as a 2035 fund.

Rather, they will be invested in a strategy that puts them in line to meet an 80 percent retirement income replacement goal, explained Ready. Those further from that goal will be invested more aggressively.

Next year, Wells Fargo will be offering sponsors and participants managed accounts, offered through Financial Engines.

Target My Retirement will be a lower cost option to standard managed account fare, said Ready. As far as the foreseeable future is concerned, he sees more innovation in TDFs.

“We think that the TDF market will continue to evolve and look to incorporate more personalization and other individual-based features rather than the traditional one-size-fits-all approach,” said Ready.

Plan advisors will of course be central to any product evolution. So far, feedback from advisors has been favorable, he said.

“This option fulfills the need for a more relevant, personalized retirement plan for participants,” said Ready. “Plan advisors will play a clear role in helping sponsors understand which options are best for the plans they serve.”