Greenspring Wealth Management Services

Target Date (k)larity®

"The selection…is a fiduciary act and, therefore, ERISA obligates fiduciaries to act prudently and solely in the interest of the plan’s participants and beneficiaries. A fiduciary must engage in an objective, thorough, and analytical process that involves consideration of the quality of competing providers and investment products…"

Department of Labor QDIA Regulation

Overview

With the passage of the Pension Protection Act of 2006 (PPA), target date funds (TDFs) have exploded in popularity and become the de facto qualified default investment alternative (QDIA) for most plan sponsors. Roughly three-quarters of defined contribution plans use a TDF and at the end of 2013, target-funds accounted for 38% of new contributions to 401(k) plans and 13.5% of total 401(k) assets. Total target-date fund assets were $574.6 billion last year, and Cerulli Associates forecasts target-fund assets to reach $2 trillion by the end of 2019 and represent 88% of new contributions.

Here are four indications it’s time to thoroughly review your plan’s TDF:

  1. Your TDF and your plan provider are the same (e.g. Vanguard, Fidelity, T. Rowe Price)
  2. You have never gone through an “objective, thorough and analytical” process regarding your TDF
  3. You don’t have any written documentation that includes how you reached decisions about the choice of TDF
  4. You cannot easily and accurately explain the “glidepath” of your plan’s TDF

Introducing Target Date (k)larity®

To assist defined contribution plan fiduciaries in choosing the most appropriate TDF strategy for their participants and help fulfill their fiduciary duties, Greenspring has created Target Date (k)larity®, a comprehensive three-phase, seven-step evaluation process that aligns with DOL guidance:

Phase 1: Ready

Define Plan Goals
The first step is to survey the plan fiduciaries and score their responses to get an accurate understanding of the prevailing attitudes, expectations and goals relative to selecting a target date solution.

Assess Participant Demographics
Next, we gather and analyze data such as age, salary, tenure, participation and deferral rates, and amount of employer contributions to help assess the long-term income replacement needs of your participants.


Phase 2: Aim

Identify Provider Alternatives
There are currently more than 30 different TDF series in the marketplace. We use our expertise to select the 3-4 options that are most likely to align with what we learned in Phase 1.

Evaluate Potential Products
Next we conduct extensive due diligence and compare each series in areas the DOL recommends like asset class exposure, glide path construction, performance, risk vs. return, and fees.


Phase 3: Fire

Choose a Strategy
We combine the goals and needs of participants from the first phase, combined with the data analysis from the second to make a recommendation on which TDF makes the most sense for your plan and why.

Effectively Communicate to Participants
Helping your participants understand and properly use TDFs is just as important as selecting the funds themselves. We provide several steps you should take to effectively educate and equip your participants.

Document the Process
We provide both a written Executive Summary and a 25+ page recommendation report to document the selection and review process, as suggested by the DOL.

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