There are three specific ways that TargetFit is trying to make target date solutions better: multiple glide paths
, participant education and exchange traded funds.
The new survey found that plan sponsors have become more amenable to reviewing and changing their glide paths
. Seventy percent of respondents reviewed their glide path
in 2017, and 35% of these made a change by modifying future trigger points.
"Because the rate move happened just at the end of the year, sponsors are still evaluating where they are on their glide paths
," says Ankit Agarwal, a quantitative research analyst at Loomis, Sayles & Co., in Boston.
Many other TDFs, though, continue on their glide paths
by reducing equity exposure for another 5,10, 15 years and sometimes even longer.
Over the years, this has resulted in changing the risk profile of the BlackRock target-date fund's glide paths
. "In 1993, we had a landing point of 20% to equities.
But as the New Year has so far been marked by dramatic volatility in equity markets, at least one proponent of TDFs is concerned fund managers have investors exposed to too much equity risk at the end of their glide paths
The funds' glide paths
, underlying funds and targeted asset allocation are the same.
Authors Robert Arnott, Katrina Sherrerd, and Lillian Wu of California-based Research Affiliates point to four "basic design flaws" that they say prevent glide paths
from achieving their goals: "1) inefficient asset class exposure, 2) mis-specification of risk and return, 3) poor diversification, and 4) constant risk premium assumptions." These researchers, like many others, make the case that with booming enrollment in defined contribution (DC) schemes, the time has come for a more sophisticated strategy-one that holds up in theory and in practice.
It's really two distinct glide paths
. At some point, they will run into each other, but off-the-shelf TDFs did not meet both of those needs."
Maximize Returns / Minimize Volatility: More than one-third (35%) of 401(k) consultants say the most important objective when evaluating target-date fund (TDF) glide paths
should be to maximize asset returns while minimizing volatility, a PIMCO survey found.
Discussion topics will include SEC and DOL requirements, "to" versus "through" glide paths
, open versus closed architecture, mutual fund versus collective trust, longevity risk, fees, and more.
have become prevalent, says Levell, and can provide a middle ground for boards divided on taking a bold action toward bonds.