Target date funds (TDFs) have become an increasingly popular investment choice for many retirement plan participants. According to a recent estimate by Bloomberg Law, participants currently hold about $1.4 trillion in TDFs.
The coronavirus crisis is putting TDFs in a new light for plan sponsors due to the potential for fiduciary breach lawsuits. During the 2008-2009 financial crisis, TDFs lost an average of 67 percent of their value. It remains to be seen what kind of damage this crisis will inflict on TDFs, but it’s possible that we could see more lawsuits later this year.
Now is a good time to ensure you’re fulfilling your fiduciary duties when it comes to your plan’s TDF offerings. Not all TDFs are the same. While the DOL has designated TDFs as a qualified default investment alternative (QDIA), the fiduciary safe harbor does not relieve you of the responsibility to prudently select and monitor your TDFs and ensure that fees are reasonable.
You might consider hiring a professional fiduciary, such as a 3(21) investment advisor, to help you review your TDFs and assume co-fiduciary responsibility. You should also plan to review and consult with your advisors on a regular basis given the fluidity of the pandemic situation and economic developments.
Review your process for TDF selection and oversight to ensure it covers all your fiduciary responsibilities. Also consider establishing and documenting a formal procedure for TDF selection and oversight if you don’t currently have one, as well as maintaining thorough recordkeeping of all decisions you make.
Our professionals are here to answer your questions about your fiduciary duties as they relate to target date funds.