Selecting a target date fund for a plan is a matter of understanding what affects the participant experience at the end -- at the target date. The two key factors are:

The objective: The objective is determined by asking whether the plan’s TDF option should: continue to take on risk even as retirement approaches in order to maximize every investment dollar? Give up some future growth by switching into highly conservative asset classes in the run-up to retirement? Find a middle ground and support a predictable and sustainable drawdown of principal in retirement?

The shape of the glidepath: The glidepath describes the fund’s asset allocation from inception through the target date. Generally speaking, the fund will have more equities at the beginning and more fixed-income investment at the end. Important considerations include how quickly the risk level slopes down as the target date approaches and whether it continues to roll down after the target date.

Views on these questions have evolved over the years. For example, increasing longevity and the tendency of participants to remain in the fund after retirement drove our decision several years ago to increase our equity position at the target date from 20 percent to 38 percent. We believe that a higher equity allocation and the inclusion of real assets and TIPS lead to a more sustainable drawdown in retirement.

Other objectives and glidepaths serve different visions. For an advisor, the key to success is matching sponsor goals and participant needs against the fund’s specific features.

The Future Of TDF

Twenty years into the target-date era, TDFs appear to be a secure feature of the retirement landscape. What’s more, participants see the value: 89 percent of participants like having a fund that rebalances over time (TDFs' key feature), according to our latest BlackRock Retirement Survey. Yet only one in four participants are actually invested in a TDF -- and about three in 10 said they are not sure if their employer even offers one.

Clearly there is more work to be done in delivering TDFs' potential benefits to participants.

I believe TDFs are viable for the future and, when combined with intelligent plan designs to encourage savings, they can create successful retirement outcomes for most participants. Advisors unquestionably can play a leading role in helping DC sponsors provide solutions that truly support participants along their entire path to retirement.

Chip Castille is managing director, head of BlackRock’s U.S. & Canada Defined Contribution (DC) Group.

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