Target-date funds: missing the target and hitting the fiduciaries?

Target-date funds (also frequently referred to as lifecycle funds) have become a popular investment choice to help guide 401(k) plan participants on a path to retirement. These funds provide a vehicle for investing in a mix of assets through a single mutual fund that should both rebalance its asset allocation periodically and shift its focus from growth to income as the participant approaches retirement. However, these funds are not as simple as often presented by the fund providers and must be carefully examined by plan fiduciaries to protect plan participants and prevent potential liability. Here are three relevant questions that should be considered when offering target-date funds as plan investment options: 1. How is the investment performance of the target-date fund as a whole and the individual investments that make up that fund? 2. What asset classes are used within the target-date fund to achieve diversification? 3. What are the fees associated with the target-date fund?