Catching Up With PIMCO’s Personalized Target-Date Funds
Target-date funds have long been a staple of retirement planning, offering employees an age-based glide path to guide their asset allocation. However, a growing demand for personalization has led to discussion of more personalized TDFs that can cater to client needs.
PIMCO’s myTDF, launched in 2021 and offered in market in 2023, has been a prominent offering of a TDF that incorporates more participant-specific data and promises to better align investment strategies with individual goals.
“The objective of a savings or income program, like a glide path, is to get to a certain replacement ratio,” says Rene Martel, PIMCO’s head of retirement. “We want people to be able to ultimately replace, hypothetically, say, 70% of their salary in retirement.”
He explains there are several factors that can impact the glide path, including current balance, salary, contributions, employer matches and age. Traditional TDFs typically tailor the glide path only to age. All other considerations are based on broad averages or plan-wide demographics.
Martel notes that myTDF, and similar personalized options, integrate data from recordkeepers to account for each participant’s unique financial profile, such as their contribution rate and salary history. This results in an individualized glide path for every plan member, rather than a one-size-fits-all solution.
As the retirement landscape shifts toward increased customization, personalized TDFs are seeking position among more prevalent managed accounts, either as a sole solution or a bridge to MAs. As of recent reporting by lead MA provider Edelman Financial Engines, the market for MAs in defined contribution plans is about $500 billion; other providers include a third-party offering from Morningstar Inc. and recordkeepers including Fidelity Investments and Empower.
PIMCO is also partnered with Nexus338’s iGPS, a TDF solution that includes age, salary, assets, deferral rate and match rate. Nexus338 is the 3(38) provider, PIMCO is the investment manager and iJoin is the technology provider.
Early Rollout and Adoption
The journey to create myTDF began in earnest in about 2019, Martel says, with significant progress made by mid-2022 and broader market availability by 2023. Since its launch, the product has been used by more than 300 plan sponsors. Combined, these plans manage approximately $470 million in assets.
To accommodate varying client needs, myTDF is offered in two versions. The difference between the two lies in who acts as the fiduciary under ERISA Section 3(38): the asset manager or a third party.
The product is now live on four recordkeeping platforms, with plans for further expansion. Martel acknowledged the challenges of integrating with additional platforms, noting that each connection requires time, resources and coordination with recordkeepers. However, he expects the process to accelerate as familiarity with the systems improves.
Addressing Challenges and Future Growth
While personalized TDFs represent a significant step forward, there are hurdles to overcome. Data quality is a key concern. Although factors like age, salary and contributions are readily available, other variables, such as defined benefit plan details, are harder to capture, Martel says. These nuances could further enhance the customization of glide paths but require more robust data integration.
Martel emphasizes the importance of accurate data, stating, “What we’re delivering hinges on the data being correct. As we add more factors, ensuring accuracy and consistency will be critical.”
Looking ahead, Martel expects myTDF to incorporate lifetime income solutions, such as annuities, into its offerings. This would allow participants to allocate a portion of their savings to guaranteed income products based on their personal circumstances.
Another area PIMCO hopes to explore is a dual-QDIA model, in which participants initially invest in traditional TDFs and then transition to personalized options as they near retirement. This approach could address cost concerns while maximizing the benefits of personalization when participants’ balances are larger and their circumstances more complex.
Positive Reception, But Room for Improvement
Feedback from plan advisers has been largely positive, Martel shares, particularly for plans with diverse participant demographics. He says advisers are interested in how personalized TDFs offer tailored solutions without requiring participants to actively engage with investment platforms, a common barrier to adoption.
He says advisers have also offered areas for improvement, such as implementing the dual-QDIA model to balance cost and value. Martel notes that while the focus has been on simplicity, these ideas are under consideration as the product evolves.