Target-date funds, once considered a conservative approach to retirement planning, are now under the microscope by both plan sponsors and participants. The COVID-19 pandemic and the March market decline sparked a massive selloff of assets particularly in 2020 funds, whose participants are at or close to retirement, and seeking safer alternatives. The selloffs have shed new light on the risks associated with this investment strategy.
The increased scrutiny is due in part to the dominance of target-date funds in plan offerings, and recent litigation filed by employees, claiming breach of fiduciary duty in target date fund selection. No two funds are the same, as the Pensions & Investments article, “March drop rattled 2020 target-date fund investors,” highlights. Carol Buckmann, co-founder of Cohen & Buckmann and author of “Are Your Target Date Funds a Prudent Investment? COVID-19 Puts a Spotlight on Fiduciary Choices,” is quoted in the article and explains that extra time is being spent analyzing target-date funds and related hidden risks, which are the focus of recent litigation. She explains that many plan sponsors don’t understand these funds, and she is urging her clients to review them. “Plan sponsors who aren’t concerned, should be,” [Carol] warned. “They’re the ticking time bombs of litigation.”