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Plan Sponsors Pick and Choose Funds in Target-Date Series
Plan sponsors adopting only funds that match participants' demographics

By SHRM Online staff  8/19/2011

Sponsors of 401(k) and other defined contribution plans are selecting only specific parts of a target-date fund series, even though asset managers market the entire target-date fund series, according to an August 2011 report, Trends in Target-Date Portfolios on Recordkeeper Platforms, released by Financial Research Corp. (FRC), a research and consulting firm focused on the investment industry.

“Target date funds have experienced explosive growth in recent years and continue to be a notable bright spot for the mutual fund industry,” said Mike Alfred, CEO and co-founder of BrightScope, a provider of retirement plan ratings, which conducted the research with FRC. However, "data from recordkeepers and plan sponsors indicate that plan sponsors are adopting only the funds that match the specific demographics of their participants. For instance, a plan sponsor may select only five out of 12 funds in a target-date series," he noted.

When this trend plays out in the broader marketplace, it leads to varying asset levels across target-date categories. As seen in FRC’s data, 70 percent of target-date mutual fund assets are held in the five most popular fund categories: 2020, 2030, 2025, 2015, and 2040,” said Lynette DeWitt, author of the report. “We’ve known already that a few fund categories hold the largest assets, and now we understand why. We anticipate that the less popular funds in a series will remain open to maturity now, but target-date series in the future will be comprised of fewer funds.”

Related Article--External:

Tweaking 'Target' Lineups, Wall Street Journal, August 2011

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