Target-date funds are increasingly more common in defined contribution plans, but few plan sponsors have adopted them as their default investment option for participants, AllianceBernstein found in a survey released Tuesday.
While more than half of plan sponsors offer TDFs, the report found, of those, just half use them as the default investment when automatically enrolling participants.
AllianceBernstein surveyed more than 1,000 plan sponsors in November 2011 for the sponsor portion of the survey. It surveyed more than 1,000 participants in February 2012 for the participant portion.
“Even in the wake of a continuing decline of Social Security and defined benefit plans as primary sources for retirement income, our recent research shows that many plan sponsors are still struggling to find the best way to structure their DC plans,” Joe Healy, head of AllianceBernstein’s Defined Contribution Client Experience, said in a statement. “While more and more sponsors recognize the benefits of offering an age-based, asset-allocation investment solution to their participants, they fail to realize valuable fiduciary protections by not designating these funds as their plan’s default.”
Of the sponsors who don’t use a TDF as their default, 83% have no default at all, or are using a fund that isn’t a qualified default investment alternative, like a stable value fund, equity fund or bond fund.
While sponsors have largely accepted TDFs as a staple in their plans, they haven’t fully embraced their capabilities, the report found. About one in five midsize plan sponsors (those with between $1 million and $249 million in assets) and 22% of large sponsors (those with $250 million or more) offer a customized TDF.