Four Factors to Consider When Selecting Target Date Funds

Part of the plan governance process for employer sponsored plans is selecting and monitoring a suitable target date fund series for your plan participants.

Target date funds are known for their simple automated approach and dynamic asset allocation. In fact, approximately $1.8 trillion is invested in target date funds¹ and 98% of 401(k) plans have these funds in their investment lineup.²

Here are four factors to consider when selecting target date funds:

1. Management – The quality and experience of the fund managers should be evaluated.
2. Active vs. Passive – Target date funds consist of underlying funds that can be all active, all passive or a combination of both.
3. Expenses – Fees affect investment returns so it is important to weigh the cost and potential return.
4. Glide Path –Some glide paths are managed “to the retirement year” whereas some are managed “through the retirement year”.

Not all target date funds are constructed in the same manner. Let a Jemma Retirement Plan Consultant help you explore the different target date funds. We can conduct a formal target date fund study, helping you select a suitable choice based on your plan’s demographics. Contact us to start the conversation.

Sources: 1. Morningstar, 2. Vanguard