Target Date Funds Best Practices

Target Date Funds (TDFs) have long been the default investment option in many DC plans, but 2025 brings renewed regulatory attention and a high standard of care for plan sponsors and advisors alike.

Regulatory Spotlight

The Department of Labor and Congress have both turned up the heat on TDF oversight. While TDFs are easy for participants to use, they’re complex under the hood – blending equity, fixed income, and sometimes alternative exposures with shifting allocations over time. That complexity requires careful selection, transparent communication, and ongoing monitoring.

Recent guidance emphasizes:

• Plan demographics must match the glide path strategy.

• Fee transparency is critical.

• Performance should be reviewed regularly – not just rubber-stamped.

• Clear communication to participants is essential, particularly in volatile markets.

  
  

The Advisor’s Role

This is where advisors step in. We must guide plan sponsors through fiduciary best practices, including:

• Benchmarking TDFs not only by performance, but by asset allocation philosophy.

• Assessing glide paths based on participant behavior, not just age.

• Encouraging review committees to revisit TDF choices at least annually.

For example, a TDF designed for high-income tech professionals may not suit a workforce of hourly retail employees who tend to retire earlier and have shorter investment horizons.

Improving Participant Outcomes

As advisors, we should also provide participant education that breaks down what a TDF is – and isn’t. While marketed as “set it and forget it,” these funds still demand periodic participant review, particularly during major life events like job changes, retirement planning, or inheritance.

We also must press for improved transparency. Participants deserve to know how their funds are allocated, what risks they face, and how fees stack up.

Bottom Line

Regulators are holding DC plans to higher standards when it comes to default investments. Financial advisors must help clients look under the hood, challenge outdated assumptions, and ensure participants are in TDFs that truly align with their retirement timelines and risk tolerance.

This material is published and distributed by Financial Media Exchange for informational and educational purposes only. It is not intended as investment advice or a recommendation to buy or sell any security. Investing involves risk, including the potential loss of principal. Past performance does not guarantee future results. Investment returns and principal value will fluctuate, and you may experience gains or losses when you sell your investment. Current performance may be higher or lower than the performance data quoted. The information presented is believed to be reliable but is not guaranteed. You should consult your own financial professional before making any investment decisions. This content complies with SEC and FINRA guidelines for educational communications and does not promote any specific products or strategies.