Use These Practical Ideas to Implement a Participant-Focused Target Date Fund Evaluation
To give participants a better chance for retirement readiness — and to satisfy fiduciary obligations — plan sponsors should have a process for evaluating and monitoring target date offerings.
American Funds believes in a five-point evaluation process. Presented below are the five considerations along with actionable ideas for each one.
Consideration 1: Participant Needs
- Conduct a plan information audit to determine what participant data you already have.
- Start planning ways to collect participant data.
See our in-depth discussion of participant needs in target date fund evaluation.
Consideration 2: Glide Path Construction
- Examine the size of stock allocations throughout the glide path.
- Search for a series whose investments in traditional asset classes provide high diversification without sacrificing liquidity or increasing fees.
- Seek low-fee options that can provide opportunities beyond benchmarks.
- Look for a series that takes an evolving approach to allocations within major asset classes to help lower volatility.
- Assess how well a series balances equity exposure and risk by identifying a series with a high Retirement Efficiency Ratio.*
See our in-depth discussion of glide path construction in target date fund evaluation.
Consideration 3: Value Versus Cost
- Analyze fees between target date series.
- Check fees of different share classes.
- Compare series’ returns against expenses to determine value.
See our in-depth discussion of cost vs. value as a factor in target date fund evaluation.
Consideration 4: Quality of Underlying Funds
- Review the persistency of underlying funds’ returns.
- Examine the consistency of underlying funds’ strategies and management.
- Evaluate underlying funds’ approaches to diversification and risk management.
See our in-depth discussion of the quality of underlying funds in target date fund evaluation.
Consideration 5: Consistency
- Check the stability of the fund’s approach, including its glide path.
- Review series results, considering consistency and down-market protection.
- Evaluate series management personnel and structure.
See our in-depth discussion of consistency and repeatability in target date fund evaluation.