participant preferences in target-date funds

Participant Preferences in Target-Date Funds:Examining Perceptions and Expectations

Among Target-Date Users and Non-Users

A research study by ING Investment Management and ING Retirement Research Institute

February 2012

INVESTMENT MANAGEMENT

ing Target-Date Research: February 20122

n ING surveyed 540 defined contribution plan participants in September 2011 to examine their preferences among different target-date fund features.

n The survey found that plan participants who use target-date funds are significantly more confident in their ability to reach retirement goals than those who don’t use target-date funds.

n The overwhelming preference of both users and non-users was to preserve their wealth, rather than grow it, at or near retirement.

n Both users and non-users showed a strong preference for target-date funds that incorporate a broad number of asset classes and are managed by multiple investment managers.

n The survey found strong support from participants for target-date funds as a qualified default investment option (QDIA).

n Participants want and need more education about target-date funds from their employers.

n A deeper understanding of the preferences and expectations of their employees when selecting target-date providers can help plan sponsors choose funds that best meet the needs of their participant populations.

Executive SummaryTable of ContentsBackground and Rationale 3

Target-DateUser confidence Levels 6

Participant Allocation Preferences near Retirement 9

Participant Preferences Regarding Asset classes and investment Managers 12

Participant Support for TDFs as QDiAs 14

Participants and Target-Date Fund Education 16

Target-Date Funds and the Future of Retirement Savings 18

ing Target-Date Research: February 2012 3

Target-date funds (TDFs) — which provide users with dynamic asset allocation over time through the convenience of a single age- and risk-appropriate investment — went from the fringes of defined contribution plan investment menus to center stage with the passage of the Pension Protection Act of 2006 (PPA). The PPA affords safe-harbor provisions to plan sponsors that adopt automatic enrollment and escalation within their defined contribution plans, provided certain requirements are met. To provide a suitable investment vehicle for these enrollments, the PPA also carved out a new category called the Qualified Default Investment Alternative (QDIA), which included target-date funds. As a QDIA, target-date funds provided safe-harbor fiduciary relief to plan sponsors that automatically default new plan participants into the funds. With the subsequent growth in automatic enrollment and the increases in participation rates1 and contribution rates2 that resulted, TDF assets have exploded from $15 billion at the end of 2002 to $381 billion as of December 2011.3

McKinsey projects traditional target-date funds will represent 35–40% of all defined contribution assets by 2015, or 50–60% if balanced and target-risk suites are included.4

Target-date assets have

exploded from $15 billion in

2002 to $381 billion in 2011.

Background and Rationale

1 Jodi DiCenzo, “Behavioral Finance and Retirement Plan Contributions: How Participants Behave, and Prescriptive Solutions.” EBRI Issue Brief, no. 301 (Employee Benefit Research Institute, January 2007).2 James J. Choi, David I. Laibson, Brigitte C. Madrian, and Andrew Metrick, “Saving for Retirement on the Path of Least Resistance,” in Ed McCaffrey and Joel Slemrod, eds., Behavioral Public Finance: Toward a New Agenda, Russell Sage Foundation, 2006.3 Strategic Insight, December 31, 2011.4 McKinsey & Company, The Defined Contribution Market of 2015, October 7, 2010.

Figure 1. TDF Assets Are Expected to grow Significantly

Other*

Stable Value

Fixed Income

Equity

Balanced/Target Risk

Target Date

13%7-10%

12%

5-7%

16%

38%

10%

11%

6-8%

20-25%

15-20%

35-40%

2009 2015

$4.1 Trillion $5.4-6.0 Trillion

* Includes company stock and assets held through brokerage windows.


Target-date funds are designed to be complete investment portfolios that adjust their asset allocations to become more conservative as participants move closer to their retirement date; however, the way target-date funds approach this objective can vary greatly among providers. Given the dramatic growth in target-date fund assets plus the array of target-date fund options available, questions persist within the industry about participants’ understanding and use of target-date funds.

This concern became magnified in the aftermath of the 2008 financial crisis. The losses in that year ranged from approximately four percent to 41 percent for 2010 target-date funds.5 Inconsistent levels of volatility two years away from the retirement age may be “explainable” by significantly different degrees of exposure to riskier asset classes in different target-date funds, but has this been explained to investors? More importantly, does it matter to investors that target-date offerings have unique variations among providers in terms of asset allocations, product features and investment philosophies?

To help answer these questions, we conducted a study to measure participant understanding and acceptance of these and other important nuances of target-date funds. We asked actual retirement plan participants — both TDF users and non-users — a variety of questions about target-date funds, such as:

n What are participants’ expectations around risks in target-date funds?

n Do they understand and embrace the various features of target-date funds?

n Do they have preferences with regard to asset allocation and how it should change over time?

The goal is to help plan sponsors stretch their due-diligence process beyond the traditional measures, such as relative performance screens, to factor in the alignment of a target-date fund’s product design with the demographics, behaviors, preferences and expectations of the sponsor’s participant population.

In 2008, the losses for 2010

target-date funds ranged

from approximately four

percent to 41 percent.

5 Based on Morningstar Direct data obtained for Testimony Concerning Target Date Funds before the United States Senate Special Committee on Aging, October 28, 2009.


This study was designed

to identify participant

expectations and

preferences around risks

and design features of

target-date funds.

6 At 90% confidence, the margin of error in the study was +/- 3.5%.

Study Methodology

For this study, ING Investment Management partnered with Synovate, a leading global market research company. Using an online questionnaire, we randomly surveyed 540 active defined contribution participants across the country from September 19, 2011 to September 20, 2011. To prevent bias, ING Investment Management was not identified as the sponsor of this research. All respondents to the survey were currently contributing to an employer-sponsored defined contribution plan, were age 25 or older and were the primary/joint financial decision maker for their account.

The survey included plans of all sizes. The data has been weighted by household income and gender to more closely represent the demographics of the general retirement plan population.6

Of the 540 respondents, 212 invested in TDFs, while 328 did not.

Survey topics were aligned around the following themes:

n Attitudes toward managing investments and decision making

n Preferences for different TDF features

n Interest level and confidence in TDFs

n General comprehension of investing terms and TDFs


found that only 22% of workers felt very confident that they are doing a good job of preparing financially for retirement and only 28% felt very confident they will have enough money to take care of basic expenses during retirement.7 These low numbers should surprise no one given the decline in defined benefit plans, the transfer of responsibility for retirement planning and savings from employer to employees, and the decline in retirement plan account balances since 2008.

What may be surprising, however, is the positive role target-date funds are having on the confidence of retirement investors. Our survey found that target-date users felt significantly more confident about their prospects for a successful retirement than participants who did not have access to target-date funds. Target-date fund investors feel more in control of their retirement destiny than non-users. Confidence and control may contribute to employee satisfaction.

Some of the specific questions and results from the survey are listed on the following chart, which compares the responses of three types of retirement plan investors:

Users: plan participants that invest in target-date funds

Active non-Users: plan participants that have access to target-date funds but actively chose not to invest

Passive non-Users: plan participants that do not have access to target-date funds or do not know if they have access to target-date funds.

TDF users also express higher levels of confidence with their investment

7 Helman, Copeland, VanDerhei (2011).

Target-Date Funds Increase User Confidence LevelsA recent retirement confidence survey by the Employee Benefits Research Institute

Target-date users felt

significantly more

confident about their plan’s

investment selections and

their own prospects for a

successful retirement than

non-users.


General confidence

levels are highest among

target-date users and

lowest among those who

do not have target-date

funds as an investment

option (passive non-users).

Figure 2. TDF Users Are More confident than non-Users

PassiveNon-Users

ActiveNon-Users

Users

68% 65%

52%

I am comfortable deciding how much to invest in each investment option in my employer-sponsored retirement plan

I am confident that I will reach my retirement goals

It’s easy to get enough information about my investment options to make informed decisions

PassiveNon-Users

ActiveNon-Users

Users

53%

39% 40%

PassiveNon-Users

ActiveNon-Users

Users

70%61%

52%


options and the ability of their investments to help them achieve a successful retirement. This kind of result likely matters when it comes to a plan sponsor’s fiduciary duty to care for the interests of the greatest number of plan participants. Contrast this with the non-users in our survey, of whom 45% had confidence that they were making good investment decisions and only 41% expressed confidence they would reach their retirement goals.

The gap in confidence levels between TDF users and non-users suggests that TDFs provide a diversified investment option for plan participants who often lack the time, knowledge or inclination to manage their investments on their own. The increased confidence among users suggests that they are satisfied with TDFs as one of their primary retirement savings vehicle.

Participants Favor a Conservative Investment

71% of TDF users felt

target-date funds increased

investment confidence.

Target-Date Funds Help Users Feel More confident in Their own investment Decisions and outlook

A target-date fund will increase my confidence that I am making good investment decisions

71% of users felt TDFs increase investment confidence

A target-date fund will increase my confidence that I will have a successful retirement

67% of users felt TDFs will increase confidence in a successful retirement


Approach Near RetirementAs the primary vehicle for individuals’ retirement savings evolves away from traditional pension plans toward defined contribution plans, plan sponsors need to consider participants’ preferences regarding their investment allocations, particularly as participants get closer to retirement. Our survey attempted to capture those preferences to help clarify the needs and wants of participants.

The survey used “at or near retirement” as a proxy for the actual target date, on the assumption that participants would be more likely to respond to the meaning behind the target date — that is, the participants’ expected retirement age — than the terminology used in the industry. Phrased in that way, a clear preference for conservatism near retirement emerged among target-date users and non-users equally. Of TDF users, 93% wanted a TDF to provide “stronger protection against market losses” in the years nearing and in retirement, versus a focus on investment growth. If asked to choose, 80% of users (66% of non-users) preferred a retirement investment that “provided stronger protection against investment losses near and in retirement” instead of one that “provides stronger potential for investment gain.”

Participants were asked:

In the last few years before your retirement, and your first few years in retirement, which of the following best describes your preference for your employer-sponsored retirement plan investments?

93% of TDF users wanted a

target-date fund to provide

stronger protection against

market losses in the years

nearing and in retirement.

Figure 3. Participants Preferred Protection Against Loss in Retirement investments

I strongly prefer an approachwhich provides strongerprotection againstinvestment loss

I prefer an approach whichprovides stronger protectionagainst investment loss

No preference

I prefer an approach whichprovides stronger potentialfor investment gain

I strongly prefer anapproach which providesstronger potential forinvestment gain

33%

47%

10%

8%

28%

38%

19%

12%2%

80%Prefer or

Strongly PreferProtection

Against Loss

66%Prefer or

Strongly PreferProtection

Against Loss

TDF Users Non-Users

3%


Participants clearly view retirement age as a key milestone for measuring the value of their retirement funds, and the majority don’t want their accumulated savings

subjected to significant capital market losses either in the years leading up to or after retirement.

guaranteed income at Retirement

The extreme market volatility in 2008 and beyond has confirmed that retirement planning is not just about seeking growth and managing risk. It’s also about being able to count on having a certain amount of retirement income no matter what happens in the market and no matter how long participants live. The latest innovation of target-date funds are guaranteed-income components that further protect participants’ accumulated wealth. Some target-date providers now offer guaranteed income options at retirement, comparable to the payout structure of a defined benefit plan or Social Security. The survey asked if participants were interested in a target-date fund that turned assets into a guaranteed stream of income at retirement; a clear majority — 88% of target-date users and 68% of non–users — had “some” or “a lot” of interest in this type of product.

88% of TDF users had

interest in a target-date

fund that offers guaranteed

income at retirement.

Figure 4. Participants clearly Prefer Protection Against investment Loss over Potential for investment gain

TDF Users Non-Users

Stronger protectionfrom investment loss

Stronger potential forinvestments to grow

79% 71%

21% 29%


The “To” Versus “Through” Debate

One of the biggest debates among TDF observers is the relative merits of “to” and “through” glidepath* approaches. On one side are those that advocate for a target-date glidepath that continues to manage the reduction of equity exposure “through” the point of retirement (i.e., beyond the target date) in an effort to take advantage of the growth potential of stocks to better support today’s longer life expectancies and more active retirements. These types of target-date funds often have a higher equity exposure at the point of retirement relative to peers.

The “to” approach, on the other hand, reaches its most conservative allocation at the retirement target date. Proponents of this glidepath argue that participants are most vulnerable to market shocks at or near retirement, since they have accumulated larger account balances, have less time to recover from losses and are inclined to draw on or roll over funds to a different type of investment and/or payout vehicle at that time. As we learned in 2008, short-term market risks can have a long-term impact on retirement funds if assets are drawn at an inopportune time.

Most target-date funds advocate the “through” approach, where the glidepath tends to be more aggressive than a “to” approach at retirement age. As companies start to recognize the preferences and behaviors of plan participants, many are taking a closer look at pros and cons of the “to” and “through” approaches to glidepath design. According to a recent survey, the percentage of target-date companies that manage “to” retirement has increased from 31% at the end of 2007 to 42% by the end of 2010.8

When selecting a target-date fund, plan sponsors should understand the provider’s glidepath design and whether it matches the preference of their participants and the demographics of their employee populations. Since glidepaths vary the most near and in retirement, it is critical to understand a manager’s philosophy and approach as the participant makes the transition from regular contributions to the withdrawal phase.

Please note: The above chart is for illustrative purposes only. Actual equity allocations can vary significantly between target date managers before and after the retirement dates.* The glidepath refers to how the asset allocation mix changes in a target-date fund as the target-date approaches. The glidepath formula is the central mechanism by which target-date funds adjust to changing investor risk profiles over time, becoming more conservative (more fixed-income assets and fewer equities) the closer a fund gets to the target date.

8 Israelsen and Nagengast (2011), who write “in December of 2007, 12 of 39 (31%) fund companies brought their glidepath to its most conservative position as of the date in the funds’ name. By December of 2010, that number has changed to 20 of 48 fund companies (42%).”

Figure 5. “To” TDFs May Have a Smaller Equity Allocation at Retirement

0102030405060708090

100

10 20 30 40 50 60 70 80

Age

Perc

ent

of

Equ

ity

(%)

In RetirementThrough Retirement

To Retirement

The percentage of “to”

managers has increased from

31% at the end of 2007 to

42% at the end of 2010.


Only six of the largest

21 target-date managers

allocate meaningfully to

active, non-proprietary

funds.9

Participants Favor TDFs with Broad Diversification of Asset Classes and Investment ManagersTarget-date fund managers not only differ in their asset allocation designs, they also differ in their use of underlying investment managers, allocations to various asset classes, and the inclusion of active and passive investment sleeves. When asked specifically about target-date funds, participants showed a strong interest in diversification not only by asset class but also by investment manager.

Diversification interest Level

Respondents were asked if they were interested in the following:

Target-date funds that incorporate many asset classes in order take advantage of broad market exposure across those asset classes

Target-date funds that are managed by multiple investment managers, designed to use the best managers across different asset classes (e.g., stocks, bonds) to take advantage of their expertise in specific investment classes

Figure 6. interest in Multiple Asset classes Among TDF Users

Strong Interest

Interest

No Interest

89%Interest

33%

57%

10%

Strong Interest

Interest

No Interest

84%Interest

35%

49%

16%

Figure 7. interest in Multiple investment Managers Among TDF Users

9 ING Investment Management research of target-date mutual fund assets under management and asset mix as of December 31, 2011, based on prospectuses.


Participants were asked:

Would you prefer to have a target-date fund that allocates to multiple asset managers to gain exposure to best-in-class managers across different asset classes (e.g., stock, bonds), or a single asset manager with experience in all asset classes?

Given this participant preference for diversification, it’s important for plan sponsors to determine that their target-date offering, which is designed to be a comprehensive single-portfolio solution, actually provides adequate diversification. Most target-date providers offer broad diversification among asset classes, but they may not include key sub-asset classes or alternative investments. Additionally, very few target-date providers offer broad diversification among investment managers, as many invest only in proprietary funds. This survey illustrates that participants prefer a retirement solution that offers broad diversification across asset managers and asset classes.

61% of TDF users

prefer multi-manager

approaches, while 14%

prefer single-manager.Strongly prefer “multipleasset manager” approach

Prefer “multiple assetmanager” approach

No preference

Prefer “single assetmanager” approach

Strong prefer “single assetmanager” approach

22%

39%

25%

11%

10%

32%

39%

15%

3%

TDF Users Non-Users

4%

61%Prefer or

Strongly PreferMultiple

Managers

42%Prefer or

Strongly PreferMultiple

Managers

Figure 8. Both TDF Users and non-Users Prefer Multiple Managers


70% of defined

contribution plans with

a QDIA option now use

target-date funds as the

default option, up from

36% in 2007.

Participants Support TDFs as QDIAsThe Pension Protection Act catapulted target-date funds into defined contribution plans post 2006. According to Callan Investments Institute, 70% of defined contribution plans with a QDIA option now use target-date funds as a QDIA, up from 36% in 2007.10

10 Callan Investments Institute, Defined Contribution Trends Survey, 2010 and 2011.

Figure 9. TDFs Have grown Significantly as Plan QDiA options

(% of Plans)

2007

36%

59%

69% 70%

2008 2009 2010

Diversification Beyond Target-Date Funds

Given that target-date funds adjust their diversified asset class exposures over time as users approach retirement, they are intended as a single investment option for a plan participant. However, participants often elect to supplement a target-date fund with other investments.

This trend has puzzled many observers. The survey asked TDF participants who had other investments besides the TDF why they did it. Interestingly, the highest answer (at 47%) was for more diversification; other answers included “to be more aggressive” (32%), “to further customize my portfolio” (20%) and “to be more conservative” (20%), which are all variations of the diversification theme. It’s difficult to determine whether this indicates they are not using TDFs in the manner intended, or whether they are following a rational strategy of avoiding investment concentration.


To gauge whether participants support this increased use of target-date funds as QDIA, the survey asked participants if they were interested in the following:

A target-date fund as the default option in your employer-sponsored retirement plan, which means that your contributions would automatically be invested in this option if you did not select other investment options.

Of TDF users, 75% said they were interested in a target-date fund as the default option. Even 53% of non-users, who presumably would not be interested in having their investments automatically directed without their consent, were attracted by the idea.

The result is reinforced in a recent ING-commissioned study by Ipsos Public Affairs11 that found 75% of employees (including plan participants and non-participants) said their employer should offer strategies to make saving easier and more automatic for employees.

These findings should give support to plan sponsors that may be understandably anxious about the rapid shift away from participant-directed investments to a world that combines automatic enrollment, changes in default options, enhanced fiduciary responsibilities, a diminished workforce (including less Human Resources support) and ongoing market uncertainty.

“The Paradox of choice”

The support for target-date funds as a QDIA among participants may be derived partly from the ease and simplicity of TDF implementation. But another factor that may also be at work is what Columbia University business professor Sheena Iyengar terms “the paradox of choice.”12 While choice is one of the most important human desires, she argues, too much choice can be debilitating. To illustrate the hypothesis, she set up a booth in a gourmet market that offered an assortment of fruit jams. Every few hours, the number of jams was switched from 24 to six. More people were drawn to the larger assortment (60% of customers versus 40%), but far fewer actually made a jam selection when given the larger number of choices. In fact, only 3% of visitors to the 24-jam spread purchased a jar, while 30% of visitors to the booth with only six choices bought a jam.

We’ve seen this same behavioral tendency in 401(k) plans, where participation rates have gone up as choices have gone down. Target-date funds, as a diversified default investment, may give participants more comfort, because participants don’t have to worry whether they had made the right choice, had enough investing information or were given appropriate options.

11 ING Retirement Institute, as reported in “Beyond Politics and Pundits: What Americans think about the Private Retirement System,” 2010. Ipsos Public Affairs conducted the survey between March 18 and 20, 2010 based on a random sample of 1,000 men and women nationwide and weighted to ensure regional, age and gender composition reflective of the actual American population according to U.S. Census bureau data.12 Sheena Iyengar, The Art of Choosing, Twelve (an imprint of Grand Central Publishing), 2010.

75% of TDF users and 53%

of non-users said they were

interested in a target-date

fund as the default

investment option in their

retirement plan.


Only 55% of TDF users

knew that a target-date

asset allocation becomes

more conservative over

time.

Participants Need — And Are Requesting — More Education About Target-Date Funds The survey attempted to gauge not only the preferences of plan participants but their understanding of key TDF concepts. Here is an overview of survey respondents’ knowledge about target-date funds, grouped by users and non-users. Key target-date fund features are listed to the left, with the percentages of participants who believe these are actual features of target-date funds indicated on the right.

Careful scrutiny of these responses can reveal some potential education challenges for plan sponsors. Only 55% of TDF users knew that target-date asset allocation becomes more conservative over time and only 36% knew what a glidepath was. The survey also revealed that 38% of TDF users knew the products offered all-in-one, hands-off investing, and that 20% of users thought guaranteed income was part of their TDF investment. Retirement professionals should keep in mind that while target-date funds have been widely examined within the investment community, participants are not as well-versed in the features and benefits of TDFs.

Significantly, retirement plan investment communications is one of the biggest issues for non-users. More than one-third of non-users were unsure if their employer-sponsored retirement plan offered a TDF option. When asked directly if they wanted more communication on TDFs from their plan sponsor, 57% of non-users indicated they would.

0 10 20 30 40 50 60 70 80

63%

55%

44%

38%

17%

13%

10%

2%TDF Users

51%

43%

36%

27%

21%

8%

9%

18%

They have a diversified mix of stocks and bonds

Asset allocation becomes moreconservative over time

The stock/bond mix is automatically adjusted

Offers all-in-one, hands-off investing

At the target date, the assets are convertedinto a guaranteed income

All target-date fund managers use the same asset allocation (mix of stocks and bonds)

At the target date, the money is returned to you

None of the above Non-Users

Figure 10. Testing Participant Knowledge Levels: Do You Believe the Following is True About Target-Date Funds?


The biggest influence

in getting participants

to start saving for

retirement, according

to an ING Retirement

Research Institute study,

was education from

their employer.

The desire for more effective participant education gains even more significance when one considers a recent ING Retirement Research Institute study13 of retirement plan participants that found the biggest influence in getting participants to start saving for retirement, at 40% of respondents, was “education from employer.”

Employees are increasingly looking to their employer for help in understanding investment principles and options. The onus is on the plan sponsor to help meet these expectations through education. Partnering with target-date fund providers, financial advisors, consultants and other investor-facing professionals can help today’s employer expand the knowledge base of diverse workforces and increase their confidence levels in their retirement investments.

13 ING Retirement Institute, as reported in “In it for the Long Run,” 2010. Mathew Greenwald & Associates conducted the online, nationwide survey of 1,000 workers currently participating in an employer-sponsored retirement plan between September 24 and 28, 2010, with data weighted to reflect U.S. Census statistics of employed individuals.

Educationfrom Employer

FinancialAdvisor

Friends andFamily

Research /Internet

OtherCo-Workers

26%22%

10% 10%

40% 39%

Figure 11. Education from Employer has the Most influence on getting Participants to Start Saving for Retirement


Target-Date Funds and the Future of Retirement SavingsWith the preferences of participants in mind, Figure 12 outlines the current competitive landscape of the target-date fund industry. Comparing the survey results with actual industry practice, a number of discrepancies emerge that plan sponsors should note. Regarding the glidepath, while respondents showed a clear preference for stronger protection against market losses near or at retirement, only about one-third of the largest target-date providers14 currently manage to that preference. Similarly, in the face of strong participant interest in multiple investment managers, about three-fourths of the largest target-date providers14 limit investment to proprietary funds. Other but narrower gaps between preference and practice exist in asset class diversification and in the guaranteed income at retirement feature. All this points to the importance of selecting a target-date provider appropriate for the needs of the participants.

Figure 12: Disconnect Between Participant Preferences and industry Practices

Target-Date FeatureING Target-Date Research Finding Target-Date Industry

Glidepath Allocation at Retirement

93% of TDF users want stronger protection against market losses near retirement.

Eight of the 21 largest target-date managers manage “to” Retirement rather than “through.”

Investment Architecture 84% of TDF users want multiple investment managers.

Six of the 21 largest target-date managers allocate meaningfully to active, non-proprietary funds.

Asset Class Diversification 89% of TDF users want broad market exposure through multiple asset classes.

The level of diversification among traditional and alternative asset classes varies widely between TDF providers.

Guaranteed Income 88% of TDF users and 68% of non-users have interest in a target-date fund that offers guaranteed income at retirement.

Only a handful of managers currently offer a target-date suite with a guaranteed income component.

Target-date funds are unique among QDIAs and, in fact, among other investment options. Both quantitative factors (glidepath, asset mix, performance, fees, investment strategies and rankings), as well as qualitative factors (most importantly participants’ comfort level with, understanding of and feelings about target-date funds) come into play. Both sets of factors should be jointly considered in the target-date selection process and in ongoing best practices as they relate to their plan participants’ expectations and behaviors.

In its final regulations on the Pension Protection Act of 2006, published October 2007, the U.S. Department of Labor recognized that “while the QDIA regulations provide relief when participants are defaulted into a QDIA, the DOL maintains its view that fiduciaries are not relieved of the responsibility to prudently select and monitor any QDIA under the plan.” A subsequent working group of benefit experts convened by DOL recommended to “reinforce ERISA requirements relative to plan investments in target-date funds.” Among their conclusions was “that additional education material and illustrations would be beneficial for plan participants to make them aware of the value and risks relative to TDFs.”15

14 ING Investment Management research of target-date mutual fund assets under management and asset mix as of December 31, 2011, based on prospectuses.15 Advisory Council on Employee Welfare and Pension Benefits Plans for the Employee Benefits Security Administration of the U.S. Department of Labor, “Report on Hard To Value Assets and Target Date Funds,” 2008.

Our survey points to the

importance of selecting

a target-date provider

appropriate for the needs

and demographics of

individual plans.


ReferencesAdvisory Council on Employee Welfare and Pension Benefits Plans for the Employee Benefits Security Administration of the U.S. Department of Labor, “Report on Hard To Value Assets and Target Date Funds,” 2008.

Peter Brady, Sarah Holden, and Erin Short, The U.S. Retirement Market, Second Quarter 2010. Investment Company Institute, October 2010.

Callan Investments Institute, Defined Contribution Trends Survey, 2010 and 2011.

James J. Choi, David I. Laibson, Brigitte C. Madrian, and Andrew Metrick, “Saving for Retirement on the Path of Least Resistance,” in Ed McCaffrey and Joel Slemrod, eds., Behavioral Public Finance: Toward a New Agenda, Russell Sage Foundation, 2006.

Craig Copeland, “Target-Date Fund Use in 401(k) Plans and the Persistence of Their Use, 2007−2009,” EBRI Issue Brief, no. 361, August 2011.

Jodi DiCenzo, “Behavioral Finance and Retirement Plan Contributions: How Participants Behave, and Prescriptive Solutions.” EBRI Issue Brief, no. 301 (Employee Benefit Research Institute, January 2007).

Ruth Helman, Craig Copeland, and Jack VanDerhei, “The 2011 Retirement Confidence Survey: Confidence Drops to Record Lows, Reflecting ’the New Normal’,” EBRI Issue Brief, no. 355 (Employee Benefit Research Institute), March 2011.

ING Retirement Institute, “Retirement in Review 2010: A Look at Defined Contribution Investors”, 2010.

ING Retirement Institute, “Beyond Politics and Pundits: What Americans think about the Private Retirement System,” October 2010.

Craig Israelsen and Joseph Nagengast, Popping the Hood IV, 2011: An Analysis of Target Date Fund Families, BrightScope Target Date Analytics, 2011.

Sheena Iyengar, The Art of Choosing, Twelve (an imprint of Grand Central Publishing), 2010.

McKinsey & Company, The Defined Contribution Market of 2015, October 7, 2010.

ING Investment Management has additional materials available to plan sponsors and advisors that provide a framework for assessing the investment approaches of different TDF providers and help individual plans meet their fiduciary duties in the selection of a target-date provider.

For more information contact an ING representative at 800-334-3444 or visit www.inginvestment.com.

Our survey dovetails with this effort by identifying how participants understand target-date funds, and what specific features they prefer. While the need for education remains strong, participants do have clear preferences that plan sponsors can start to address, specifically for a conservative glidepath at or near retirement and a highly diversified investment approach.

The simplicity and ease of target-date funds are appealing to users and non-users alike, with design elements that help plan sponsors manage their fiduciary obligations, increase employee satisfaction levels and improve employee retirement preparedness — especially if the preferences of participants are considered.

INVESTMENT MANAGEMENT

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Our goal is to improve retirement outcomes through the introduction of innovative programs coupled with our unique insight into the industry based on how consumers planning for retirement actually think, feel and make financial decisions. We do this by listening to the public through various research initiatives, turning what we learn into applicable knowledge and leading by creating innovative solutions that motivate consumers to take positive action towards ensuring successful retirement outcomes.

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* As of December 31, 2011

participant preferences in target-date funds

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