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Target Date

November 2017  |  FEATURING Jeanell Novak & Rich Lang

Ingredients Matter: The Critical Role of Underlying Funds in Target Date

Discussions about a target date series often center on the glide path. Less attention has been paid to the ingredients used to create the glide path — the underlying equity and bond funds.

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DEFINED CONTRIBUTION INSIGHTS  |  October 2017

Does Your Target Date Series Have “Fantastic” Underlying Funds?

A target date series is only as good as its underlying funds. This infographic illustrates just how “Fantastic” the underlying funds of the American Funds Target Date Retirement Series℠ have been.

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DEFINED CONTRIBUTION INSIGHTS  | 
July 2017
 |  FEATURING Bradley J. Vogt & Craig Duglin

Target Date at 10 Years: What’s Worked in Target Date Funds

The Pension Protection Act took effect 10 years ago, leading to a surge of assets into target date funds. In this video, principal investment officer of American Funds Target Date Retirement Series® Brad Vogt shares his thoughts on what we’ve learned over the past 10 years, including:

  • The shift toward greater allocations to equity among many target date series. 
  • Why an unbalanced focus on fees can potentially be detrimental to participant outcomes. 
  • The benefits of having flexible global and multi-asset funds.
  • Managing investment risk in the years leading up to retirement.
  • What makes American Funds Target Date Series different and successful in the 10 years since its launch. 

Watch Video (6.53)

DEFINED CONTRIBUTION INSIGHTS  |  November 2017

A Powerful Approach to Target Date Fund Evaluation

American Funds Target Date ProView® tool provides a fast, powerful online platform to help analyze and compare target date fund series for a defined contribution retirement plan. It also provides you, as a retirement plan intermediary, with a way to differentiate yourself and increase the value you can deliver to your clients. 

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DEFINED CONTRIBUTION INSIGHTS  |  September 2016

Legal Insights: Passive Does Not Reduce Fiduciary Liability

Recent Department of Labor (DOL) emphasis on fees combined with numerous 401(k) plan fee-related lawsuits have led some plan fiduciaries to question whether offering actively managed funds is riskier than passive funds that are typically less expensive.

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DEFINED CONTRIBUTION INSIGHTS  |  August 2016

Take a More Dynamic Approach to Managing Volatility in Target Date Funds

We believe that target date series should feature not only a gradual reduction in equities over time, but also a gradual shift in the nature of that equity exposure. This transition, which we call recharacterizing the equity exposure, effectively creates a “glide path within a glide path” that can help lower volatility.

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DEFINED CONTRIBUTION INSIGHTS  | 
July 2016
 |  FEATURING Bradley J. Vogt

American Funds: Keep Target Date Funds on Target

American Funds portfolio manager Brad Vogt explains the importance of the right target date series to help investors pursue their retirement goals. Beyond the glide path, a good evaluation process should include an examination of the underlying funds and the purpose each serves over the long-term.

Watch Video (2:22)

DEFINED CONTRIBUTION INSIGHTS  |  July 2016

Can You Get the Best of DB With the Best of DC?

Streamline the Number of Investment Options

Ideas for “DB-izing” a DC Plan

Why DBize?

The decline of defined benefit plans and the rise of defined contribution plans have created dilemmas for both plan sponsors and participants. Although they had their own disadvantages, DB plans make saving fairly easy for participants; DB participants are automatically enrolled and don’t have to make any investment decisions. With the growth of DC, much of that responsibility has shifted to participants, with mixed results. However, there are steps DC plan sponsors can take to seek the best of both the DB and DC worlds. By incorporating aspects of defined benefit plans into a DC plan design, plan sponsors can strive to address the following problems that many DC participants face:

  • Low enrollment
  • Inadequate contribution rate
  • Inappropriate asset allocation

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DEFINED CONTRIBUTION INSIGHTS  |  January 2016

Is Passive Truly the Safer Fiduciary Choice for TDFs?

Given the rapid acceptance of target date funds (TDFs) as the primary retirement investment strategy for American workers, the choice of target date provider is now among the most important decisions for an investment committee.

The beauty of a TDF is its simplicity for participants. However, its underlying complexity can challenge committees tasked with assessing a TDF’s glide path design, risk/return profile and fee structure as part of fiduciary due diligence.

One of the considerations is whether the TDF should be actively or passively managed. In either case, appropriate due diligence must be conducted. When selecting a TDF provider, sponsors should remember:

  • Passive management does not provide fiduciary protection.
  • Active management may lead to better participant outcomes.

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DEFINED CONTRIBUTION INSIGHTS  |  June 2015

Why Investment Re-enrollment Matters

Plan fiduciaries devote significant time and resources to educating participants about the importance of saving for retirement.

Despite this effort and the care that goes into making a well-balanced menu of investment options available to all participants, many participant allocations are at odds with their retirement needs.

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DEFINED CONTRIBUTION INSIGHTS  |  March 2015

Participant Needs in Target Date Fund Evaluation

Meeting DOL Guidelines, Article 1 of 5

Help satisfy DOL guidelines with a participant-focused approach to evaluating target date funds.

 

Authors:

Wesley Phoa, portfolio manager, target date and fixed-Income funds, 21 years of experience.

Jason Bortz, ERISA attorney, 17 years of experience.

Toni Brown, CFA senior defined contribution specialist, 25 years of experience.

John Doyle, senior defined contribution specialist, 28 years of experience.

Rich Lang, investment specialist, 21 years of experience.

Years of experience as of December 31, 2014.

Target date funds have enormous potential to make defined contribution plans more effective and straightforward for participants. But to capture the funds’ benefits — and to help meet fiduciary obligations — plan sponsors must implement thorough, well-documented evaluation procedures.

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DEFINED CONTRIBUTION INSIGHTS  |  September 2014

A Closer Look at the American Funds Target Date Retirement Series® 

Exhibit 3: American Funds (R-3) vs. Relevant Index

*Some indexes do not have histories sufficient for comparison to the lifetime of certain funds. See General Methodology section below for details.

In these videos, portfolio managers Jim Lovelace, Wesley Phoa and Brad Vogt discuss the American Funds Target Date Retirement Series.

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DEFINED CONTRIBUTION INSIGHTS  |  August 2014

Complementary Fixed Income and Equity in Target Date Funds

American Funds Target Date Retirement Series Glide Path

The target allocations shown are effective as of January 1, 2015, and are subject to the Portfolio Oversight Committee’s discretion. The funds’ investment adviser anticipates that the funds will invest their assets within a range that deviates no more than 10% above or below these allocations. For quarterly updates of fund allocations, visit americanfundsretirement.com.

Glide Path Within a Glide Path: How Fixed Income and Equity Can Work Together to Help Improve Retirement Outcomes

All target date series feature glide paths that reduce equities and simultaneously increase fixed income over time. American Funds Target Date Retirement Series® is distinguished by also featuring shifts in the nature of both the equity and the fixed-income exposure.

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Figures shown are past results and are not predictive of results in future periods. Current and future results may be lower or higher than those shown. Share prices and returns will vary, so investors may lose money. Investing for short periods makes losses more likely. View fund expense ratios and returns. 

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses or the collective investment trust's Characteristics statement, which can be obtained from a financial professional, Capital or your relationship manager, and should be read carefully before investing. 

Investing outside the United States involves risks, such as currency fluctuations, periods of illiquidity and price volatility, as more fully described in the prospectus. These risks may be heightened in connection with investments in developing countries. Small-company stocks entail additional risks, and they can fluctuate in price more than larger company stocks. 

The return of principal for bond funds and for funds with significant underlying bond holdings is not guaranteed. Fund shares are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings. Lower rated bonds are subject to greater fluctuations in value and risk of loss of income and principal than higher rated bonds. Investments in mortgage-related securities involve additional risks, such as prepayment risk, as more fully described in the prospectus. While not directly correlated to changes in interest rates, the values of inflation-linked bonds generally fluctuate in response to changes in real interest rates and may experience greater losses than other debt securities with similar durations. 

Each target date fund is composed of a mix of the American Funds and is subject to the risks and returns of the underlying funds. Underlying funds may be added or removed during the year. Although the target date funds are managed for investors on a projected retirement date time frame, the funds' allocation strategy does not guarantee that investors' retirement goals will be met. The target date is the year in which an investor is assumed to retire and begin taking withdrawals. American Funds investment professionals manage the target date fund's portfolio, moving it from a more growth-oriented strategy to a more income-oriented focus as the fund gets closer to its target date. Investment professionals continue to manage each fund for 30 years after it reaches its target date. 

Fund shares of U.S. Government Securities Fund are not guaranteed by the U.S. government.

Because Class R-6 shares do not include any recordkeeping payments, expenses are lower and results are higher. Other share classes that include recordkeeping costs have higher expenses and lower results than Class R-6. 

Investment results assume all distributions are reinvested and reflect applicable fees and expenses. 

For , the investment adviser is currently reimbursing a portion of other expenses through at least April 7, 2018, without which the results would have been lower and net expense ratios higher. The adviser may elect at its discretion to extend, modify or terminate the reimbursement at that time. Please see the fund's most recent prospectus for details. 

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and not to be comprehensive or to provide advice. Investors should consult their tax or legal advisors. 

The Capital Group companies manage equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.

Content contained herein is not intended to serve as impartial investment or fiduciary advice. The content has been developed by Capital Group, which receives fees for managing, distributing and/or servicing its investments.

Past results are not predictive of results in future periods.

Capture ratios reflect the annualized product of fund vs. index returns for all months in which the index had a positive return (upside capture) or negative return (downside capture).