Target Date Funds of the Future | American Funds

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How Will the Target Date Funds of the Future Compare With Today?

Target date funds (TDFs) have become the QDIA of choice for defined contribution plans of all sizes. The TDFs of today are generally well diversified, thoughtfully constructed, and reflect reasonable investments for a participant throughout the savings phase. Participants too have embraced the concept of an easily understood single decision based upon the year they expect to retire.

Is there a next evolution of this successful retirement solution? Here we discuss various strategies being implemented and proposed, and how sponsors can view them in the context of their plans’ objectives.

TDFs Today

There are many TDF series available, but they all fall into one of two categories.

Off-the-Shelf vs. Custom TDFs

Plan sponsors who seek custom TDF solutions must be willing and able to oversee the development process.

Considerations for creating a custom series include:

  • Desire for glide path customization because of
    • A unique employee base
    • A unique benefits structure
  • Ability to aggregate assets (and lower fees) by utilizing current defined contribution or defined benefit underlying managers
  • Ability to incorporate illiquid assets

TDF series, either off-the-shelf or custom, are designed to meet broad participant investment needs. Since there are meaningful differences among series, plan sponsors should understand what they offer relative to what is available in the marketplace.

While TDFs have been effective for plan sponsors and participants alike, there are additional features that are being researched and discussed.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing. 

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and not to be comprehensive or to provide advice.