Target Date Analyzer
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About the Target Date Analyzer
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Help Your Clients Make A Better Choice: Target Date Analysis
You want to help your clients and prospects make an informed target date choice for their retirement plan.
The DOL recommends that plan fiduciaries establish a process for comparing and selecting target date investments. The target date analyzer provides detailed output comparing attributes of specific target date investments. Use the tool for initial selection of a plan's target date series and ongoing reviews. You can use the output to validate the selection and document the process.
Consider some of these common target date characteristics among others when helping your clients evaluate target date investments.
Understand the glide path
The DOL notes that there are many variations among target date offerings. A key difference is the glide path. The glide path determines the amount of equity exposure at any point within a portfolio's progression towards the target date. One of the important places to focus on the glide path is equity exposure at normal retirement date and beyond. The target date analyzer can provide a detailed, side-by-side representation of the various asset classes at all stages of the glide path.
Higher equity exposure at or during retirement can mean greater risk of loss and potential for investors to benefit from equity upswings. On the other hand, investors may not have time to make up any fluctuations before they need to start making withdrawals.
Years until Retirement
Take a look at the chart on the right. In this example, the participant has 30 years until retirement. As you can see, the glide path determines the amount of equity risk exposure.
Years after Retirement
In the same chart, you'll notice that some glide paths continue to reduce equity exposure until a specific point while others stay the same at retirement and beyond. These are considered “through” glide paths, as they continue to manage equity exposure past the normal retirement date.
CHOOSE A GLIDE PATH EXAMPLE
Years until Retirement
Years after Retirement
CHOOSE A GLIDE PATH EXAMPLE
30 years until retirement
At retirement
Equity exposure 30 years until retirement
TARGET DATE A
TARGET DATE B
TARGET DATE C
86%
85%
90%
Note the above glide paths are for example only and do not represent any specific investment option. To compare target date investments
run a report now!Equity exposure at retirement
TARGET DATE A
TARGET DATE B
TARGET DATE C
43%
45%
52%
Note the above glide paths are for example only and do not represent any specific investment option. To compare target date investments
run a report now!Equity exposure after retirement
TARGET DATE A
TARGET DATE B
TARGET DATE C
21%
45%
24%
Note the above glide paths are for example only and do not represent any specific investment option. To compare target date investments
run a report now!Manager diversification
The DOL encourages plan fiduciaries to review manager diversification within a target date investment and suggests considering custom or non-proprietary target date investments. The target date analyzer provides side-by-side comparison of manager diversification within a target date investment series allowing you to help plan sponsor clients.
Single-manager approach
A single-manager provider means an affiliated firm is managing all the underlying investment options in the target date series.
Multi-manager approach
A multi-manager approach involves choosing sub-advisors from the broad universe of available investment managers for the underlying investment options.
Fees & expenses
Low fees do not necessarily equal fiduciary protection. Consider what the plan needs are and what the appropriate plan fiduciary believes is most important.
Expenses →
Expenses
Generally, a passive strategy is lower in cost to participants since an indexed investment tracks or invests only according to its applicable index. The manager doesn’t attempt to outperform the index. A manager of an actively managed investment would be attempting outperform the applicable index but in turn the investment fees could likely be higher.
Active management →
Active management
With an active strategy, the manager attempts to outperform the applicable index, so cost is generally higher.
Balance of expense & management →
Balance of expense & management
A hybrid strategy, or blend of active and passive management, seeks to outperform the applicable index in asset classes where the manager sees opportunity. Also seeks to use more passive management for cost benefits in assets classes where the index may be harder to beat.
Document the process and educate participants
Selecting and monitoring
Keeping participants informed
Selecting and monitoring
The DOL recommends that plan fiduciaries establish and follow an objective process for selecting target date investments. Developing and implementing a rigorous process for identifying, selecting and monitoring investment managers and then documenting that process can be easy with the target date analyzer.
Keeping participants informed
The DOL stresses the importance of providing employee communications. Participants should understand what a target date investment is and what it is not. Consider delivering high-quality communications and education to participants to help them understand. Look for service providers that offer a user-friendly website that includes educational materials on this topic.
Now you’re ready to evaluate target date funds for your client
ABOUT TARGET DATE INVESTMENT OPTIONS:
Target date portfolios are managed toward a particular target date, or the approximate date the investor is expected to start withdrawing money from the portfolio. As each target date portfolio approaches its target date, the investment mix becomes more conservative by increasing exposure to generally more conservative investments and reducing exposure to typically more aggressive investments. Neither the principal nor the underlying assets of target date portfolios are guaranteed at any time, including the target date. Investment risk remains at all times. Asset allocation and diversification do not ensure a profit or protect against a loss. Be sure to see the relevant prospectus or offering document for full discussion of a target date investment option including determination of when the portfolio achieves its most conservative allocation.
