Target-Date Funds in 401(k)s: What Plan Sponsors Need to Know

Plan sponsors and advisors are increasingly aware that even though plan participants may be members of the same generation, their financial circumstances may differ greatly. “The reality is that all people of one age don’t have the same needs,” says Paul Swanson, CFA, CIMA. Swanson is Vice President, Retirement, at Cuna Mutual Group.

This is important to remember, particularly when looking at target-date funds. One of the biggest myths around target-date funds in 401(k) plans is that all TDFs are the same. Not so, says Swanson. “Although all TDFs take the same basic approach of moving along a glide path to reduce equity exposure over time and come packaged in 5-year vintages, there are many important differences that plan sponsors should be aware of.”

Swanson discusses three of the key differences between TDFs, as well as the advantages of “off-the-shelf” versions versus customized versions. He examines misconceptions about performance as a selection factor and offers three strategies plan sponsors can use to decide what TDFs are appropriate for their plan participants. 

Listen to Paul Swanson,CFA, CIMA, Vice President, Retirement, Cuna Mutual Group and BenefitsPRO retirement advisor editor Caroline Marwitz discuss  myths and misconceptions about target-date funds in 401(k) plans and offer strategies plan sponsors can use to make the most of their choices.