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Researchers : Defined Contribution Plans: Key Information on Target Date Funds as Default Investments Should Be Provided to Plan Sponsors and Participants
Complete Description:Because of recent concerns about significant losses in and differences in the performance of some Target Date Funds (TDF)s, GAO was asked to address the following questions: (1) To what extent do the investment compositions of TDFs vary; (2) what is known about the performance of TDFs; (3) how do plan sponsors select and monitor TDFs that are chosen as the plan's default investment, and what steps do they take to communicate information on these funds to their participants; and (4) what steps have DOL and the Securities and Exchange Commission (SEC) taken to ensure that plan sponsors appropriately select and use TDFs? GAO reviewed available reports and data, and interviewed TDF managers, plan sponsors, relevant federal officials, and others. GAO found that target date funds vary considerably in asset structures and in other ways, largely as a result of the different objectives and investment philosophies of fund managers. In addition, allocations are based in part on assumptions about plan participant actions--such as contribution rates and how plan participants will manage 401(k) assets upon retirement. These investment differences and differences between assumed and actual participant behavior may have significant implications for the retirement security of plan participants invested in TDFs. Recent TDF performance has varied considerably, and while studies show that many investors will obtain significantly positive returns over the long term, a small percentage of investors may have poor or negative returns.While some plan sponsors conduct robust TDF selection and monitoring processes, other plan sponsors face challenges in doing so. Some plan sponsors and others noted that participants typically understand little about TDFs. While DOL and SEC have taken important steps to improve TDF disclosures, participant education, and guidance for plan sponsors and participants, GAO recommended that DOL take actions to assist plan sponsors in selecting TDFs to best suit their employees, and to ensure that plan participants have access to essential information about TDFs.
Date Published:Saturday, January 1, 2011
Funding Agency: US General Accountability Office
Type: Report;
Source: Focus groups and/or interviews; Literature review;
Language: English
Audience: Researcher