Credit: Shutterstock photoBy Ronald Surz :
What are the objectives for your target date fund? Good chance your fund provider has told you that they are to (1) replace pay and (2) manage longevity risk. But that's not what TDF providers say in their official documents, namely their prospectuses. Most TDFs have the same stated objectives in their prospectuses. They read something like this boilerplate: "Provide capital appreciation and current income consistent with its asset allocation." Importantly, these are not the phony objectives that appear in sales presentations.
ERISA attorneys and the DOL encourage fiduciaries to research their TDF selection by reading the prospectuses, and by seeking TDF objectives that are in line with the objectives of the plan. The table below provides links to TDF prospectuses, and the statement of objectives that is in those prospectuses.
As you can see, the stated prospectus objectives tell us very little and are quite similar. These real objectives are not helpful in differentiating offerings. Only a few come close to what I think are the appropriate objectives: to (1) preserve the purchasing power of participant assets, and (2) grow assets as much as possible without jeopardizing the primary preservation objective.
The objectives in sales brochures are not in prospectuses because the right course of action for achieving brochure goals is to save enough. If an investor has not saved enough, as is the usual case, replacing pay and managing longevity risk are mere hopes. An objective without a reasonable likelihood of achievement is a mere hope, a phony. For more details, please see Current Practices .
It's like maintaining two books of accounting records, one for taxes and the other for investors. TDFs have two sets of objectives, one for regulators and the other for investors. Fund companies might say that brochure objectives are financial, whereas prospectus objectives pertain to investment performance, but the only bridge between these two is adequate savings, an unlikely condition.
See also Withdrawal Rates During Retirement: Are We Being Too Conservative? on seekingalpha.com
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
