Russell Outlines TDF Evaluation Strategies

The right metrics and valuation strategy can help defined contribution (DC) plan investment committees cut through the complexity of evaluating target-date fund (TDF) performance.


Exactly what those metrics and strategies are—and how to establish them—form the subject of a Russell Investments white paper dubbed “Evaluating target date investment performance.” In the paper, researchers urge investment committee members to separate investment performance measures and participant success to ensure the focus remains on employee outcomes. Other key considerations include showing skepticism towards peer-relative performance evaluation and ensuring glide paths have been reviewed independently.


Researchers also outlined what they called the four TDF performance drivers critical for investment committee members to consider when making plan decisions. These include a fund’s market risk exposure by age, strategic positioning, tactical positioning and security selection features.

While the first measure, also known as a plan’s glide path, is a long-term consideration and therefore difficult to judge directly against a single benchmark, the other three performance drivers can be evaluated using two theoretical benchmarks outlined in the white paper. These are called the “simple benchmark” and the “composite benchmark.”

The simple benchmark, according the paper, is based on two indexes that are combined to mirror a target date portfolio’s total allocation to growth assets (equities, commodities, etc.) and capital-preservation assets (core bonds, Treasury Inflation-Protected Securities, etc.). The result is a benchmark that can provide a passive representation of the two broad asset categories most frequently defined in a glide path.

The composite benchmark, on the other hand, is developed by rolling up the respective indexes representing each asset class available in a TDF and weighting those to the portfolio’s strategic asset allocation. Thus the return associated with this type of benchmark is designed to isolate the value added or detracted from active security selection, tactical shifts, rebalancing, fees and fund-level transaction costs, according to the paper.

Together, the two benchmarks can provide insight into a TDF’s performance. For instance, when comparing the performance metrics of the composite benchmark to those of the simple benchmark, the composite benchmark should be doing better on a risk-adjusted return basis if the asset allocation decisions of the TDF managers are actually adding value.

A full discussion of how to use these benchmarks, as well as the paper’s other suggestions to DC investment committee members, is available here.

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Social Security Announces 2014 Benefit Increase

The Social Security Administration (SSA) has announced a 1.5% benefit increase for 2014.

The increase will affect monthly Social Security and Supplemental Security Income (SSI) benefits for nearly 63 million Americans. The 1.5% cost-of-living adjustment (COLA) will begin with benefits that more than 57 million Social Security beneficiaries receive in January 2014. Increased payments to more than 8 million SSI beneficiaries will begin on December 31, 2013.

Other changes that take effect in January of each year are based on the increase in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase from $113,700 to $117,000. Of the estimated 165 million workers who will pay Social Security taxes in 2014, about 10 million will pay higher taxes as a result of the increase in the taxable maximum, according to the SSA.

More information about how the COLA is calculated can be found here.

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