PIMCO: TDF Selection, Monitoring Is Not One-Size-Fits-All. PIMCO recently conducted a Q&A on target date fund (TDF) selection and monitoring with senior leaders from some of the top defined contribution (DC) retirement plan providers in the U.S.: Chao & Co, Innovest, Lockton, SageView Advisory and USI Consulting. PIMCO observed that many retirement advisors have a vetted, thorough process around TDF selection. However, many could use more guidance around the ongoing monitoring of TDFs. PIMCO points to the Department of Labor’s (DOL) tips released in 2013, which state specifically “that DC Plans need to ‘establish a process for periodic review of target-date-funds.’”
In reading the responses from top leaders at these firms, one thing is clear: there does not seem to be a consistent process around TDF selection and review. Granted, all firms have these processes, but each approaches them a bit differently. That said, there are common threads, at least among the providers PIMCO interviewed.
For example, PIMCO asked each provider if they currently have a TDF monitoring process in place, and if so, what that process looks like. Each answered in turn that they do monitor their plans’ TDF offerings. Most conduct monthly or quarterly reviews, and all review the funds at least annually. The providers interviewed said their firms focus on several different aspects when reviewing and evaluating TDFs, including plan demographics, manager and investment performance and glide path, among other factors.
The interviewees agreed that plan demographics were a key factor to consider when it comes to selecting and monitoring TDFs, because it’s important to ensure that the funds continue to meet the needs of the plan population over time. That said, some providers place a greater emphasis on demographics in the selection process, and less so during monitoring. Others believe that demographics are a critical part of the ongoing monitoring of the funds so they can, again, ensure the TDFs being offered continue to be a good fit for the plan and its participants.
The interview itself is an interesting read. Perhaps the most important takeaway from the PIMCO Q&A, however, is to ensure that you as a plan sponsor are having important conversations with your own TDF provider about their approach to fund selection and monitoring, as well as ensuring their views align with your own about your plan and participants.
