Senate Committee to examine 401k target-date funds

21 10 2009

Michelle New Pic

By Michelle Ash, CFP®, CDFA™


If you have an employer sponsored retirement plan, such as a 401(k) or a 403(b), you have likely seen “target-date” funds amongst your investment choices. These are funds which state a date, such as 2010 or 2020 as the “target date” for retirement.  The idea behind these funds is that they are appropriately balanced with an equity and fixed income mixture that is appropriate for someone that is that number of years away from retirement.  Over time, the funds automatically become more conservative as the individual draws closer to retirement. The idea is to put the risk tolerance and investment management with these funds on autopilot.

But the Senate Committee on Aging will begin examination this month of the fees, risks, and potential conflicts of interest associated with these funds.

A recent analysis by BrightScope of the investment options in nearly 13,000 plans found that the expenses charged by target-date funds are significantly higher than those charged by other funds on plan’s core investment menus.(1)  Because these funds are now the default investment option of most plans, meaning investors are placed into them automatically if they don’t select other investment choices, this may put some workers at a disadvantage. 

Target-date funds also have no benchmark for comparison. So, who’s to say what the appropriate blend for a target date 2010 fund would be? Consequently, returns from these funds have varied widely over recent years; sometimes causing investors who thought their money was invested relatively safely since they were close to retirement, to experience significant losses.

Our hope is that the Senate Committee’s examination will provide standards for these funds so that, like any other type of fund out there, an investor can ultimately determine for themselves if the fund is truly appropriate for their situation in terms of risk, cost, and personal best interest.


(1)  Source: “Companies take reins of workers’ 401k’s”,, 10/21/09

This blog is for informational purposes only.  This is neither an offer to purchase nor sell any securities.  All investing involves the potential of loss – including invested principal.  Indices quoted are general barometers of security price movement.  You cannot invest directly in an index.  All information is obtained from sources deemed reliable but not guaranteed.  Past performance is not a guarantee of future performance.  No tax or legal advice is given nor intended.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER(tm) and federally registered CFP (with flame logo) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Investment advisory services provided by PARAGON Wealth Strategies, LLC, a registered investment advisor. 

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