One drawback of off-the-shelf target date funds is that the sliding asset allocation models they use (which are referred to as the glide path) are pretty much one-size-fits-all, because they are solely based on age and the assumption that the person will retire at age 65 (which is very often not the case). To make the glide path more flexible and customizable, some TDF solutions are incorporating additional data beyond just age into asset allocations.
These solutions use information such as the participant’s marital status, historical contribution rates, current balance, customized targeted retirement date (if the person enters it), the availability of a defined benefit plan or other retirement assets in the creation of asset allocations.
One of the challenges with using these customized TDFs or managed accounts is getting participants to provide the additional information. Recordkeepers can provide some, but not all, of the data. In today’s environment, where high-profile data breaches like the one that occurred last year at Equifax are becoming more common, participants may be even less-inclined to provide additional demographic information to plan sponsors. Without this additional information, the asset allocation strategies may work against other strategies in a participant’s cumulative portfolio. Additionally, plan fiduciaries are required to evaluate and monitor these solutions in a comprehensive and prudent way. The proper way to assess these solutions is uncharted territory.