By Fred Reish, Partner/Chair, Fiduciary Services, ERISA Team at Drinker Biddle & Reath LLP
Previously in the selection and monitoring of target date funds (TDFs), I said that I would also discuss the DOL’s recent guidance on that subject, here it is.
Earlier this year, the DOL published "Target Date Retirement Funds — Tips for ERISA Plan Fiduciaries.” Here are a few key points:
- It is important that fiduciaries understand the asset allocations, glidepaths and expenses — and compare them to other TDFs. How many fiduciaries do that?
- In selecting a TDF suite, fiduciaries should consider their participant demographics and other factors, for example, participation in other plans (e.g., pension plans or ESOPs), salary levels, turnover rates, contribution rates and withdrawal patterns. In other words, there is no such thing as a "one-size-fits-all” TDF. How many fiduciaries do that?
- Plan sponsors are encouraged to consider "custom” TDFs. That would include managed accounts and asset allocation models. These vehicles have the advantage of being designed to consider the particular needs and demographics of the covered workforce.
The point of my questions is that there is a significant gap between what the DOL expects plan fiduciaries (e.g., plan committees) to do and what they are actually doing. As a general premise, these kinds of "gaps” are usually red flags, and those flags are signaling changes to plan sponsors.
Of course, the DOL says more than that — and explains it in more detail. This email is just an "appetizer.” Read the tips here.