Is Passive Truly the Safer Fiduciary Choice for TDFs? | American Funds

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Is Passive Truly the Safer Fiduciary Choice for TDFs?

Given the rapid acceptance of target date funds (TDFs) as the primary retirement investment strategy for American workers, the choice of target date provider is now among the most important decisions for an investment committee.

The beauty of a TDF is its simplicity for participants. However, its underlying complexity can challenge committees tasked with assessing a TDF’s glide path design, risk/return profile and fee structure as part of fiduciary due diligence.

One of the considerations is whether the TDF should be actively or passively managed. In either case, appropriate due diligence must be conducted. When selecting a TDF provider, sponsors should remember:

  • Passive management does not provide inherent fiduciary protection.
  • Managed investment strategies may lead to better participant outcomes.
Jason Bortz
Jason Bortz Associate Counsel Los Angeles office 19 years of experience (as of 12/31/16)
Toni Brown
Toni Brown, CFA Senior Defined Contribution Specialist San Francisco office 27 years of experience (as of 12/31/16)
John Doyle
John Doyle Senior Defined Contribution Specialist New York office 30 years of experience (as of 12/31/16)
Sue Walton Senior Defined Contribution Specialist Chicago office 19 years of experience (as of 12/31/16)


Passive investments do not have inherently greater fiduciary protection than active investments. When selecting TDFs, sponsors should evaluate a range of criteria, including:

  • The glide path, including the quality and type of equity and fixed income exposures as they change over time.
  • The investment process, including the level of managerial ownership and oversight.
  • Fees relative to comparable strategies and value received.

Taking an active approach to target date selection can help sponsors meet their fiduciary responsibilities while facilitating sound and productive retirement savings for their workers.

“Active managers with low fees and personal investment in their funds may be better aligned with participant objectives.”

— John Doyle


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.