CHICAGO, IL / ACCESSWIRE / June 8, 2023 / In a recent issue of Employee Benefit Plan Review, Bob Cohen and Don Nordstrom of ProManage, LLC explored what they labeled the "warning signs" of Target Date Funds (TDFs) and what should be done about TDFs' limitations in the coming year.
In their article "Warning Signs of Target Date Funds: What's Best for the Future," published in January 2023, they explain that retirement assets invested in Target
Date Funds "continue to grow (estimated at $1.8 trillion as of March 2022 per Morningstar) as defined contribution (DC) plan investors increasingly place their trust in these vehicles to be the solution to their future retirement needs. Despite this marketing success, it is long overdue to ask a few questions about the suitability and applicability of TDFs and their impact on retirement in the United States."
They then cite a few general critiques of Target Date Funds including:
- TDF investing encourages participant lethargy when it comes to asset allocation where one size does not fit all
- The suitability of TDFs is in question as they lack the ability to customize and incorporate all of the age, risk tolerance, retirement and investment needs, and personality factors that are necessary to define success for unique investors
- TDFs do not consider adequacy risks in terms of whether investors are saving enough and what the future looks like
Their article also looks at TDFs' "Inadequate Design" and "Lack of Customization" including their assertion that customization is desirable due to the reality that retirement goals among individual plans and needs can vary greatly. As a result, "(R)etirees both present and future should utilize an investment strategy that can look at the big picture and accommodate their unique circumstances with a more personalized solution. Stock and bond performance in 2022 has revealed weaknesses in the investment thesis for TDFs. Target Date Funds do not fit the necessary profile for a successful retirement future."
Publication Focus: Employee Benefit Plan Review ("EBPR") is a monthly national subscription-based journal published by Wolters Kluwer Law & Business that covers topics related to the management and administration of health and welfare benefits, pension benefits, employer communications, and compensation issues.
Author Bios: Co-author Bob Cohen is Chief Investment Officer of ProManage, LLC and co-author Don Nordstrom is a Senior Investment Analyst with the firm. The authors may be contacted at [email protected] and [email protected]
respectively. Web: https://promanageplan.com/
PR Contact: Ken Lizotte, [email protected] or 978-618-1164.
SOURCE: ProManage, LLC