Human Resources News & Insights

DOL: Time to revisit your target-date fund selections

If your company offers a 401k plan, there’s a good chance you have a target-date fund (TDF) set as the plan’s default investment option.
In fact, 86% of plans are now using TDFs as their default option, according to a 2014 Towers Watson study. And while there are definitely benefits to relying on TDFs, there are also inherent dangers in this strategy.

On the DOL’s radar

TDFs are a mixed category of mutual funds that automatically reset an investor’s asset mix, based on a specific time period. One risk is increased TDF scrutiny by the feds.

In its Spring Semiannual Regulatory Agenda, the Department of Labor (DOL) said it’ll focus on drafting enhanced disclosure requirements for TDFs.

Those enhanced requirements could be released before the end of 2014.

That means HR and benefits pros could be left scrambling to determine whether their TDFs are up to snuff with the DOL’s standards.

But is there anything employers can do in the interim? Absolutely. And the agency offered a blueprint on what firms should do when it released guidance on reviewing TDFs.

6 key steps

To make sure your TDFs are in order, the DOL recommends plan fiduciaries:

  • set up a process for comparing and selecting TDFs
  • establish a process for a periodic review of the plan’s TDFs
  • review fees and investment expenses
  • develop effective employee communications
  • use available info to evaluate the TDF, as well as any recommendations regarding the TDF selection, and
  • document the entire selection-and-review process (after all, the best way for plan fiduciaries to prove they were acting in employees’ best interests is through detailed documentation).
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