Post by Admin/YBB on Jul 25, 2021 16:13:34 GMT -6
Target date funds (TDFs) are popular in workplace retirement plans as these are allowed as DEFAULT choice for auto-signup and auto-escalation in workplace 401k/403b/457 plans; they are also available for use elsewhere (taxable accounts, IRA accounts). These are FUNDS-OF-FUNDS of active, indexed or blend (active, passive mix) funds that follow age-dependent GLIDE-PATHS. Some firms offer several types of glide-paths - conservative, moderate, aggressive. Most firms include only their own/in-house funds and the TDFs have become attractive as FEEDER funds into firms' other funds. Some firms include in-house and external funds but these tend to be expensive.
There are "Through" TDFs that have about 50-50 allocation at the retirement date and then the equity allocation continues to decline to 20-40% over the subsequent 5-10 years; some firms eventually terminate and merge the series into a retirement-income fund. "To" TDFs become most conservative at the retirement date and the equity allocation remains unchanged in subsequent years.
TDFs can be listed mutual funds (OEFs; regulated by the SEC) or cheaper, unlisted collective investment trusts (CITs; regulated by the OCC).
There are various models for retirement plan fees - all-in-one fees or itemized fees (plan level, top TDF level, underlying funds). Many plans have been sued recently by employee groups or external lawyer groups for not including the cheapest fund classes in plan TDFs; after all, plans have millions/billions in assets, so it is not reasonable for firms to include only expensive classes of funds in TDFs.
Some potential future developments are 1) Inclusion of ETFs in retirement plans as fractional-trading becomes commonplace, 2) Providing annuitization option at retirement within the framework of TDFs, etc.
Morningstar has a series on the TDFs in 2021 and several of these articles will be linked in subsequent posts.
There are "Through" TDFs that have about 50-50 allocation at the retirement date and then the equity allocation continues to decline to 20-40% over the subsequent 5-10 years; some firms eventually terminate and merge the series into a retirement-income fund. "To" TDFs become most conservative at the retirement date and the equity allocation remains unchanged in subsequent years.
TDFs can be listed mutual funds (OEFs; regulated by the SEC) or cheaper, unlisted collective investment trusts (CITs; regulated by the OCC).
There are various models for retirement plan fees - all-in-one fees or itemized fees (plan level, top TDF level, underlying funds). Many plans have been sued recently by employee groups or external lawyer groups for not including the cheapest fund classes in plan TDFs; after all, plans have millions/billions in assets, so it is not reasonable for firms to include only expensive classes of funds in TDFs.
Some potential future developments are 1) Inclusion of ETFs in retirement plans as fractional-trading becomes commonplace, 2) Providing annuitization option at retirement within the framework of TDFs, etc.
Morningstar has a series on the TDFs in 2021 and several of these articles will be linked in subsequent posts.