Connections for Success



Examine your TDFs’ Glide Paths to Ensure Suitability
James Pellino

Retirement plan fiduciaries generally are absolved from liability with respect to plan participants’ selection of investments in plans that offer multiple investment choices with various levels of risk. This includes target date funds (TDFs). Fiduciaries’ duties with respect to TDFs were fine-tuned under the Pension Protection Act. However, fiduciaries must still act prudently in selecting TDFs.

ABCs of TDFs

A key element in a TDF’s design is its glide path. This is the scheduled asset allocation evolution from a more aggressive posture to a more conservative one as the target date nears. Plan fiduciaries should make sure they understand the TDF’s glide path, including when the fund will reach its most conservative asset allocation and whether that occurs on or after the target date.

Some TDFs maintain a significant equity allocation at the target date, while others do not. Generally, the former are for employees who do not expect to withdraw their entire 401(k) plan savings immediately on retirement. Ideally, few, if any, employees would do so other than to roll the fund into a similarly invested IRA.

TDFs with minimal equity exposure at retirement are suitable for those employees who want or need to cash out. Fiduciaries must be confident that participants understand the glide path when deciding to invest.

In addition, fiduciaries should review TDFs on a regular basis (as they would any other investment) to determine whether to continue offering them to employees. Consider whether any circumstances have changed with regard to the plan and its participants since selecting the TDF array. Also, if the plan’s objectives for offering a TDF change, it may be prudent to replace the fund.

It also important to document the regular review of TDFs and all of the other investment options offered in the plan. The documentation should also make reference to the plan’s investment policy.

TDFs can be a good way to diversify an asset allocation for those who do not want the responsibility or have the specific knowledge to choose specific funds.

If you have any questions, please call Jim Pellino at [email protected] or call him at 312.670.7444. Visit to learn more about our Employee Benefit Plans Group.

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