What’s the difference between an objective and a hope? Target date fund brochures say the objectives of TDFs are to (1) replace pay and (2) manage longevity risk. You’d expect to see these objectives in prospectuses, but you don’t.
The following table makes it a simple click to open the prospectus of each target date fund, and it also provides the official objective that is stated in that prospectus. The DOL and ERISA attorneys encourage fiduciaries to research their TDF selection by reading the prospectuses, and by seeking TDF objectives that are in line with the objectives of the plan.
However, objectives found in marketing brochures are not the same as those found in prospectuses because the right course of action for achieving the stated goals is simply to save enough, which is not a very compelling call to action. If an investor has not saved enough, as is usually the case, replacing pay and managing longevity risk are mere hopes. An objective without a reasonable likelihood of achievement is a hope, and “hope” is not a solid retirement plan. For more details, please see Current Practices.
| Click to open Prospectus | Objective |
| SMART Index – Hand B&T | Preserve the purchasing power of accumulated assets and provide for growth: risk-controlled growth focused on delivering accumulated savings plus growth above inflation at the target date. |
| John Hancock Ret Choice | High total return until the fund’s target retirement date, with a greater focus on income as the target date approaches |
| Allianz | Capital growth and preservation consistent with its asset allocation |
| JP Morgan | High total return with a shift to current income and some capital appreciation over time as the Fund and some capital appreciation over time as the Fund approaches target date |
| PIMCO | Maximize real return, consistent with preservation of real capital and prudent investment management. |
| Wells Fargo | Seeks to approximate, before fees and expenses, the total return of the Dow Jones Target Index. |
| USAA | Capital appreciation and current income consistent with its current investment allocation |
| TIAA-CREF | High total return over time through a combination of capital appreciation and income |
| Vanguard | Provide capital appreciation and current income consistent with its asset allocation |
| Voya | Total return, moving to a greater emphasis on current income and inflation protection |
| Principal | Total return consisting of long-term growth of capital and current income |
| American Century | The fund seeks current income. Capital appreciation is a secondary objective. |
| Fidelity Index | Seeks high total return until its target retirement date |
| T Rowe Price | Seeks the highest total return over time consistent with an emphasis on both capital growth & income |
| Alliance Bernstein | The Strategy seeks the highest total return over time consistent with its asset mix |
| Great West L1 | Capital appreciation and income consistent with its asset allocation |
| Blackrock | Provide for retirement outcomes based on quantitatively measured risk |
| John Hancock Ret Living | High total return through its target retirement date, with a greater focus on income beyond that date |
| Fidelity | Seeks high total return until its target retirement date |
| Great West L2 | Capital appreciation and income consistent with its asset allocation |
| Great West L3 | Capital appreciation and income consistent with its asset allocation |
| Franklin Templeton | Long-term total return consistent with its asset allocation. |
| State Farm | Broadly diversified across global asset classes, with asset allocations becoming more conservative over time |
| American Funds | Seeks to balance total return and stability over time |
Ron Surz is president of Target Date Solutions www.TargetDateSolutions.com.