Financial Advisors

To: Congress, Re: Target Date Fund Risk and Practices

On Wednesday May 26, I sent the following letter to Congressional Chairpersons Patty Murray (D-Wash) and Bobby Scott (D-VA) regarding their request addressed to the Honorable Gene Dodaro, Comptroller General of GOA, to review target date fund risk and practices. They had noted, "The employer-provided retirement system must effectively serve its participants and retirees, and we are concerned certain aspects of TDFs may be placing them at risk." As someone with extensive expertise in this subject, I offered my input:

Dear Senator Murray and Representative Scott,

This is an unsolicited response to your target date fund (TDF) inquiry to GAO. I am an experienced pension consultant who has managed target date funds since 2007. I designed the patented Safe Landing Glide Path and have written two TDF books:

As detailed in this published article, your concerns are warranted in my opinion. Most TDFs are too risky near their target retirement date. The TDF industry has split into two factions. One faction, anchored by the Federal Thrift Savings Plan (TSP), believes that beneficiary savings need to be protected near the target date, with no more than 30% in risky assets. This allocation is in line with surveys of beneficiaries and advisers by PIMCO and Mass Mutual.

The other faction, anchored by the Big 3 TDF providers, believes that significant risk is necessary to compensate for inadequate savings. Many currently argue that long term bonds no longer provide protection so this Big3 faction is 90% in risky assets at the target date -- 55% equities plus 35% long-term bonds.

My patented Safe Landing Glide Path is identical to TSPs glidepath, although they were designed independently. I am very much in favor of asset protection near retirement and have written extensively on this point in my Fiduciary Corner. Importantly, glidepath design should be financially engineered in order to avoid conflicts of interest.

Is the high risk faction wrong? You will be the judge, but I believe it is wrong, even though it has attracted most of the TDF assets. In this case, popularity is not synonymous with quality. As the country’s largest bundled service providers, the Big 3 have a marketing edge.

I’d be honored and delighted to discuss.

Sincerely, Ronald Surz

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Ron Surz

Ronald J. Surz is Chief investment Officer of Glidepath Wealth Management and President of Target Date Solutions (TDS). GlidePath manages Personalized Target Date Portfolios for individual investors, primarily in IRAs. TDS manages commingled Target Date Funds for 401(k) plans. An industry veteran, Ron started his consulting career with A.G. Becker in the 1970s and formed his own consulting firms in the 1990s. With Masters degrees in Applied Mathematics and Finance, Ron publishes regularly and has developed leading edge technologies like the patented Safe Landing Glide Path® tracked by the SMART Funds® Target Date Index.

Read Ron's Bio