What You Need to Know
- Expenses and risk allocations vary considerably among funds.
- More than $1.5 trillion is invested in TDFs.
- Lawmakers want to know how market fluctuations as a result of the COVID-19 pandemic have affected TDF participants.
The House Committee on Education and Labor and the Senate Committee on Health, Education, Labor, and Pensions (HELP) want the Government Accountability Office to review target date funds, as they’re concerned certain aspects of TDFs may be placing retirement savers at risk.
TDFs are often billed as “set it and forget it” investments, yet expenses and risk allocations vary considerably among funds, the lawmakers told GAO.
“The millions of families who trust their financial futures to target date funds need to know these programs are working as advertised and providing the retirement security promised,” the lawmakers told the government watchdog.
The lawmakers noted that more than $1.5 trillion is invested in TDFs, which are often the default investment option for employer-based retirement plans.
During a hearing held Thursday by the Senate HELP Committee titled Retirement Security: Building a Better Future, Lori Lucas, president and CEO of the Employee Benefit Research Institute in Washington, said that “the typical worker is in a target date fund when they are automatically enrolled” in a workplace savings plan. “The point of the target date funds are to be well-diversified.”
Lucas said that “more than three-quarters of 401(k) plans, covering more than three-quarters of 401(k) plan participants, included target-date funds in their investment lineup.”