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Target-Date Fund Hearings on Thursday


Whither the target-date fund?

Washington will be looking at target-date funds tomorrow in a hearing sponsored by the Department of Labor and Securities and Exchange Commission.

These funds, which were supposed to be one-stop shopping for 401(k) investors, performed abysmally last year, raising questions about just how good target-date funds are. The hardest-hit 2010 funds lost as much as 41%, according to fund-tracker Morningstar, slightly worse than the S&P 500 index’s 37% loss. That’s a rotten result for anyone so close to retirement.

At tomorrow’s hearings, dozens of retirement experts, consultants and target-date-fund providers are slated to testify on issues that include these funds’ investments, glidepaths (that is, how they reallocate over time) and disclosures to investors.

One big issue: People think target-date funds are interchangeable based on their dates, but they’re often nothing alike under the hood. They may have widely variable equity allocations, and shift their investments based on very different models as they approach retirement. Those issues are especially important because target-date funds are considered qualified default investments, which means 401(k) participants who don’t choose investments get them automatically. That means that these funds are often held by the least financially-savvy investors—and that they’re gaining assets rapidly.

Will regulatory change follow? Or will the changes come from the industry itself, which is already redesigning these funds in new ways? What would you like to see happen?


Steve Ballmer, Power Forward
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