Target Date Funds in 401ks Total How Much?

Target date finds seem to hot the 401(k) bulls eye.

Target date finds seem to hot the 401(k) bulls eye.

Is it important to offer more than one target-date product to meet the needs of 401(k) plan sponsors in the United States?

Yes, according to Cerulli Associates.

“Cerulli estimates that as of year-end 2015, target-date assets held in 401(k) plans surpassed $900 billion,” Jessica Sclafani, associate director of the Boston-based research and consulting firm, said in a statement. “The importance of an asset manager’s strategy for participating in the target-date fund market has only grown and shows no sign of decreasing.”

“Two DC plans in the same industry and with similar employee demographics may arrive at very different target-date choices based on contrasting priorities for the plan,” Sclafani explained. “As a result, some of the more successful target-date providers are concluding that it is necessary to offer more than one off-the-shelf target-date product to meet DC plan sponsors’ varied needs.”

In 2013, the Department of Labor (DOL) suggested plan fiduciaries revisit their target-date fund selection and consider non-proprietary target-date funds. While the DOL does not use the term “open architecture,” its description of the potential benefits of a non-proprietary target-date fund align with the industry’s understanding of an open-architecture approach.

Based on a Cerulli Associates 2016 proprietary survey of target-date providers, the open- versus closed-architecture paradigm represents a potential area of opportunity as target-date providers consider expanding their product suite.

That said, the company notes that it’s important for plan sponsors to “look beyond these labels, such as open versus closed.”

“Open-architecture target-date funds do not always diversify plan participants’ exposure to a single manager to the degree that the open-architecture label suggests,” Sclafani added. “Open-architecture target-date products seem to resonate with the consultant community, who are quick to point out the potential risks of concentrated exposure to a single asset manager.”

Exit mobile version