Retirement plan participants continue to:
Are Target Date Funds really the best option for 401(k) plan participants?
At Burke Group, we believe in a different type of TDF called “Teaching Diversification Fundamentals.” We recognize that, while it may be good to offer Target Date Funds as part of an investment lineup, it is more important to teach investment basics and diversification to plan participants so they can make educated decisions about their investments over their entire career.
I’ve helped a dozen clients switch from Defined Benefit to Defined Contribution plans as their primary benefit plan offering for their staff. I have been on the front lines, slowly converting employees from non-savers with pension benefits managed for them to first time savers in charge of investing on their own. Employees in this position are terrified of picking their investments and they need a lifeline. I truly believe, under these circumstances, that Target Date Funds make savers out of employees who might otherwise pass on the opportunity to save.
However, too often, the industry does what seems suitable versus what our Fiduciary compass tells us we should do. Auto-enrolling and defaulting employees to TDFs do not fulfill our fiduciary obligations. There is a place for Target Date Funds in 401(k) plans, but only after we have provided meaningful education for employees.
Let’s make sure we are “Teaching Diversification Fundamentals” in addition to offering TDFs in retirement plans.