The Benefits of Improving TDF Transparency

A recent white paper examined how improved transparency with target-date funds would help retirement plan fiduciaries better understand the funds’ holdings.

“Raising the Bar on Target Date Due Diligence,” a collaboration between Manning & Napier, an investment management firm, and Strategic Insight, an Asset International company that provides clients with mutual fund industry research and business intelligence, found that, despite the rapid adoption of target-date funds (TDFs) by plans and the responsibilities in monitoring such funds, many fiduciaries admitted that they were still unclear on what their target-date funds really hold. According to the paper, this uncertainty comes from a lack of complete and comparable disclosure among the funds.

The paper recommended that fiduciaries should question whether the underlying securities of target-date funds are appropriate to meet the retirement saving needs of plan participants. While the paper acknowledged that examining funds in such detail is a challenge, regardless of this complexity, investment option due diligence is a fiduciary responsibility that must be carried out to ensure that assets are managed prudently for the benefit of the plan participants.

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In terms of the transparency of target-date portfolio construction, the paper examined:

 

  • Qualified default investment alternatives (QDIAs);
  • Investment selection and monitoring;
  • Core fund selection screening criteria;
  • Guidance on screening and monitoring from the Department of Labor (DOL); and
  • Comprehensive target date screening criteria.

 

With regard to target date due diligence for fiduciaries, the paper looked at three key considerations, which included asking if the target-date fund was transparent or translucent—i.e., whether the underlying holdings for each target-date fund are revealed—if all levels of portfolio management coordinate, and whether the target-date fund is overdiversified.

The paper concluded that full transparency on the underlying investments in a target-date fund should allow plan sponsors and advisers to better perform their fiduciary duties of due diligence on target-date funds at a level similar to that of more traditional core funds on the investment menu.

The full white paper can be found here.

Guardian Adds Investment Options

The Guardian Insurance & Annuity Company Inc. has expanded its Guardian Choice and Guardian Advantage fund lineups with several enhancements.

According to Guardian, the enhancements are designed to increase the investment options, flexibility and breadth of asset classes for plan sponsors using these options to fund their qualified retirement plans.

Guardian has added 24 new funds to Guardian Choice, bringing the total number of funds available to 127. The Guardian Advantage gained five new funds and now totals 99. With the addition of these new funds, Guardian now offers a larger and more diverse range of investment options and asset classes for the micro- to small-plan market, including multiple Qualified Default Investment Alternatives (QDIAs). Guardian has no proprietary fund requirements, which enables plan sponsors to select from a flexible fund lineup best suited to meet the needs of their plan participants.

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“We continue to offer product solutions for the ‘do-it-for-me’ plan participant who may not have the requisite experience to invest on their own,” said Jason Frain, vice president, 401(k) Product Management and Development, Guardian Retirement Solutions. “In addition to our multiple options for the hands-off investor, we offer a range of robust educational resources to help plan participants better prepare for retirement, as well as multiple tools and platforms to help financial professionals engage more meaningfully with clients.”

Guardian’s new fund offerings give plan participants who prefer the ‘do-it-for-me’ approach to retirement investing more options to help create retirement plans that are tailored to their specific investment goals, age and risk tolerance. In addition, Guardian’s website provides plan participants with background information on various types of retirement funds, a variety of educational features to help people better understand their own investing styles, and advice about how to maximize the retirement planning process.

 

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