A new survey conducted by Janus Capital Group (NYSE: JNS) found that defined contribution (DC) plan sponsors are unaware or unsure about many key aspects of target date funds, despite the fact more plans are offering such options than ever before. The survey, which has been conducted annually for four years and focuses on DC plan sponsors’ qualified default investment alternative (QDIA) fund selection, construction, monitoring and satisfaction, revealed a broad gap between plans’ utilization and understanding of target date funds.
Despite the increasing number of DC plans offering target date funds, the survey revealed a significant percentage of sponsors are still unclear about many aspects of the target date funds within their investment menus. For instance:
- Compared to 2009 findings, more plans don’t know what the end date of the glide path is in their target date funds (50% compared to 32% last year);
- More than one-third of all plans are not familiar with the “to” or “through” glide path dilemma; and
- 35% of plans (compared to 29% last year) are not sure what the best QDIA option is for their employee population.
“Given the industry-wide scrutiny on target date funds, we were surprised at the amount of uncertainty the survey data revealed,” said Russ Shipman, senior vice president and managing director of Janus’ Retirement Strategy Group. “The findings reveal a disconnect as respondents believe they’re less than well informed about their chosen target date offerings, but remain confident their employees understand the products and use them correctly. This confirms an opportunity exists to provide plan sponsors with education about the structures and mechanics of target date funds. As a firm, we understand the stakes are high for end-user plan participants so we endeavor to be part of that discussion and solution with our clients and their plan sponsors.”
The survey also revealed that plan sponsor perceptions of target date funds, as compared to other QDIA options, are shifting. An increasing number of sponsors indicated they believe balanced funds and target risk funds are the best QDIAs for their employee populations. Just 34% of respondents indicated they believe target date funds are the best QDIA for their plan, down from 57% last year. Additionally, when asked to compare QDIA options based on fees, transparency, overall performance, risk management and correct usage by participants, balanced funds saw gains each category compared to last year, while target date funds saw declines.
“With these fairly pronounced changes in plan sponsor perceptions about QDIA options, it seems possible, if not probable, that many early target date adopters are rethinking their selections,” said Shipman. “Target date funds are surely a good choice for many, but we continue to believe that balanced funds and other target risk solutions will hold their own – due largely to their simplicity and proven performance histories. The data in the survey suggests we may be on to something.”
The survey, conducted in conjunction with Asset International, Inc. between July and September 2010, reflected comments from a cross-section of more than 6,300 DC plan sponsors from a wide range of industries across the country.
About Janus Capital Group Inc.
Janus Capital Group Inc. (JCG) is a global investment firm offering strategies from three individual investment boutiques: Janus Capital Management LLC (Janus), INTECH Investment Management LLC (INTECH) and Perkins Investment Management LLC (Perkins). Each manager employs a research-intensive approach that is distinct within its respective asset class. This multi-boutique approach enables the firm to provide style-specific expertise across an array of strategies, including growth, value and risk-managed equities, fixed income and alternatives through one common distribution platform.
At the end of September 2010, JCG managed $160.8 billion in assets for shareholders, clients and institutions around the globe. Based in Denver, JCG also has offices in London, Milan, Munich, Singapore, Hong Kong, Tokyo and Melbourne.
Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus containing this and other information, please call Janus at 1-877-335-2687 or download the file from janus.com. Read it carefully before you invest or send money.
The Fund’s performance may be affected by risks that include those associated with nondiversification, non-investment grade debt securities, high-yield/high-risk securities, undervalued or overlooked companies, investments in specific industries or countries and potential conflicts of interest with the Janus Allocation Funds and Janus Dynamic Allocation Fund. Additional risks to the Fund(s) may include those associated with investing in foreign securities, emerging markets, initial public offerings, real estate investment trusts (REITs), derivatives, short sales and companies with relatively small market capitalizations. Please see a Janus prospectus for more information about risk, Fund holdings and other details.
Performance of life-cycle and target date funds depends on the underlying funds. They are subject to volatility of the financial markets in the U.S. and abroad and to additional risks associated with investing.
A retirement account should be considered a long-term investment. Retirement accounts generally have expenses and account fees, which may impact the value of the account. Non-qualified withdrawals may be subject to taxes and penalties. For more detailed information about taxes, consult your tax attorney or accountant for advice.
As with all investments, plan participants must make your own determination whether an investment in any particular security is consistent with your investment objectives, risk tolerance, financial situation and with your evaluation of the securities offered by the employer-sponsored retirement plan.
Janus Funds distributed by Janus Distributors LLC (11/10)
Rona Gilbert, 303-336-4566