Two new sets of indexes could help 401(k) plan sponsors better evaluate target-date funds, some of which have been criticized for taking on too much risk and holding too much equity near their projected date for retirement.
New York-based S&P Dow Jones Indices has launched the S&P Target Date Style Index Series, which classifies target-date funds into two groups: "To" funds, which have relatively conservative glide paths that emphasize market risk near their stated retirement date, and "Through" funds, which are more aggressive and emphasize longevity risk at and beyond the retirement date.
For defined contribution plans that want to incorporate more sensitivity to market risk, sponsors may screen for target-date funds pursuing a "To" style, and evaluate those funds relative to an S&P Target Date To Index. Conversely, sponsors may screen for target date funds pursuing a "Through" style if it is more appropriate for their plans to be more sensitive to longevity risk, and can compare such funds to an S&P Target Date Through Index.
"As defined contribution plans become increasingly important, we are excited to augment our S&P Target Date Indices lineup to help sponsors take into account both market and longevity risk sensitivity in their fund evaluation process," says Craig Lazzara, senior director at S&P Dow Jones Indices.