Monday, August 29, 2016

Target Date Fund Basic Definitions - Part 2

The U.S. Department of Labor's Employee Benefits Security Administration issued tips intended to help plan sponsors select and monitor target date funds (TDFs) in their investment lineups. These target date fund basic definitions will help plan fiduciaries navigate the Department of Labor Tips for ERISA Plan Fiduciaries.
  1. Asset classes are groups of securities that exhibit similar characteristics. The three main asset classes are equities (stock), fixed-income (bonds), and cash. Additional asset classes that may be employed within a target date fund are: world bond, emerging markets, and/or real assets like commodities and real estate investment trusts (REITs).
  2. Risk is the probability or likelihood that an investment’s actual return will be different from the expected return. This includes the possibility of losing some or all of the original investment.
  3. Volatility refers to the relative rate at which the price of a security moves up or down. Certain investments are more volatile than others.
  4. Proprietary target date funds are pre-packaged investments comprised of the underlying mutual funds of a single investment firm.
  5. Custom target date funds are built by plan sponsors who can choose to customize the glide path, asset classes, and/or underlying mutual funds appropriate for their plan demographics.
  6. Regulatory disclosure requirements refers to the DOL requirements that participants in retirement accounts receive information about the fees and expenses associated with their plans, including target date funds. Proposed regulations are being considered that would improve the disclosures that must be made to participants, specifically about target date funds.
Read 4 Steps to Building an Optimal Retirement Plan Lineup for Participants and download the Fiduciary Checklist for Target Date Fund Decisions to learn more. If you have any questions, or would like to begin talking to a retirement plan advisor, please get in touch by calling (800) 388-1963 or e-mail us at hbs@hanys.org.

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