More DC plan sponsors consider custom TDFs

The poll suggests that the percentage is rising as 37% of those surveyed said their organization is likely or somewhat likely to implement or revise custom target-date solutions in the next 18 months.

The results suggest that tide is shifting toward evaluating custom or multi-manager TDF options, says Scott Brooks, managing director, defined contribution, with SEI’s Institutional Group. “This makes complete sense as DC plan sponsors are recognizing that their fiduciary responsibilities have evolved and they need to focus on making sure the DC plan’s investments can provide participants with adequate retirement income.”

Twenty-nine percent of those surveyed said the organization measures the effectiveness of the investment options in the DC plan by evaluating if projected participant income replacement ratios are being met at retirement.

An overwhelming majority (98%) continue to measure effectiveness by only reviewing investment performance, which tends to focus on short-term metrics such as three- and five-year performance, not long-term goals. The lack of focus on meeting retirement income needs comes despite the fact that 57% said the objective of the company’s DC plan was to provide a primary source of retirement income.

Notably, a significant number (39%) of plan sponsors offering only a DC plan said the objective of the plan was to provide supplemental retirement income.

Concerns around being able to effectively meet fiduciary and oversight responsibilities when implementing more sophisticated funds might be causing delays for some plan sponsors to shift to custom TDFs.

When asked why they don’t currently implement custom TDFs, 49% said concern with added complexity/liability was a reason, while 31% cited they lack internal resources for implementation and ongoing oversight.

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• TDFs taking off in U.S.