Target Date Funds: Are They Right For Your Plan?
Pension Protection Act Paves the Way for Target Date Funds
Over the past few years we have seen an increase in interest and adoption of Target date funds (TDFs) by plan sponsors in their retirement plan investment line ups. The Pension Protection Act of 2006 (PPA)1 gave plan sponsors the guidance and comfort they needed to incorporate automatic plan features such as automatic enrollment and automatic deferral increase into their retirement plans. More importantly, plan sponsors could now make target date funds the default investment option. The PPA encouraged retirement plan sponsors to offer default investment options more in line with sound retirement investing principles that invested in stocks, bonds and cash equivalents. These funds offer greater potential returns over a longer time horizon than a cash or stable value option. The legislation removed fiduciary liability concerns by allowing target date funds, balanced funds or managed accounts as qualified default investment alternatives (QDIA) in automatic enrollment plans. The PPA took important steps toward strengthening defined contribution retirement plans overall, but more importantly helping individuals save more for retirement.
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- How the existence of Target Date Funds has grown in Retirement Plans
- The benefits of Target Date Funds for plan sponsors and participants
- The Bronfman Rothschild approach to implementing Target Date Funds in Retirement Plans