Launched in 1994, target date funds have become the workhorses of defined contribution plans. Total assets in Target Date Fund mutual funds alone have grown from about $278 million at the end of 1994 to more than $1.2 trillion in the second quarter of 2019. Factor in TDF assets in separate accounts, collective investment trusts and customized vehicles, and the estimate of total TDF assets climbs to more than $2 trillion or about 25% of total DC assets today.
The phenomenal growth of TDF assets stems largely from TDFs’ innate appeal to participants and sponsors alike. For plan participants, TDFs relieve them of the burden of creating an asset allocation strategy and choosing the investments through which they would execute it. Put simply, having TDFs in their qualified retirement plans means participants need not act as their own investment advisors. For sponsors, adding TDFs we believe it enables them to streamline their investment offering (reducing complexity and administrative costs), while meeting their fiduciary responsibility to participants.