Designing the Future of Target-Date Funds

Target-date funds are the key to the future of retirement savings for American workers. However, many target-date strategies may fail to guard against today's heightened retirement risks. It's time to revisit target-date fund designs and single-manager structures.

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Markets have evolved. Has your target-date fund?
  • Most retirement plans still have traditional, first-generation target-date solutions that use single managers, traditional stock and bond asset classes, and allocations that tend to be static.
  • But fiduciary standards—and the investment environment—have changed. In fact, the Department of Labor’s 2013 “Tips for ERISA Plan Fiduciaries,” noted that fiduciaries should “inquire about whether a custom or nonproprietary target-date fund would be a better fit for your plan.”

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Time For Target-Date 2.0
Risky Business: Single-Manager Target-Date Funds

What will the next generation target-date funds look like?

The Evolution of Target-Date Design

The Evolution of Target-Date Design
Advancing target-date diversification
  • Traditional target-date funds are falling short when it comes to tackling the four key risks to retirement savings—growth, inflation, market and longevity. And all four of those risks seem likely to increase over the next decade.
  • Our research shows how a broader range of strategies encompassing equities, fixed income, and inflation and market risk diversifiers may produce better overall outcomes versus a traditional target-date fund 80% of the time.

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Gaining Greater Lift in Your Glide Path Tempering Turbulence Along the Glide Path Diversify and Conquer: Enhancing Equities in Your Glide Path

Traditional Target-Date funds are falling short

Traditional Target-Date funds are falling short
Since 1973, starting with $500,000 at age 65, spending of 50% as replacement ratio, hypothetical target-date fund created by averaging the top three target-date mutual fund provider offerings.
A new blueprint for tomorrow's target-date fund
  • We provide DC plan sponsors and participants with a framework that analyzes key risks, evaluates the role of traditional and non-traditional diversifiers in combatting them, and builds an enhanced glide-path solution we believe will improve retirement outcomes.


High-Level Glide Path

For illustrative purposes only.

About AB’s Defined Contribution Research:

Early in 2014, AB’s defined contribution team conducted a web-based survey of over 1,000 DC plan sponsors. The survey’s respondents comprised relatively equal representation from all plan sizes across the full universe of DC plans. Thus, the survey does not necessarily reflect the status quo for overall DC assets, which are more heavily weighted to the largest plans (herein referred to as “institutional” plans).

Here is a breakdown of respondents by plan size:

Segment Plan Size Number of Respondents
Micro <$1 Mil. 204
Small $1 Mil.-$9.9 Mil. 211
Mid $10 Mil.-$49.9 Mil. 196
Large $50 Mil.-$249.9 Mil. 198
Institutional $250 Mil-$500 Mil.
>$500 Mil.

The goal was to understand how plan sponsors feel about the current state of their companies’ plans, their participants and the DC industry. This includes the key findings from our survey. It comprehensively updates the research we last conducted in 2011.

“Target date” in a fund’s name refers to the approximate year when a plan participant expects to retire and begin withdrawing from his or her account. Target-date funds gradually adjust their asset allocation, lowering risk as a participant nears retirement. Investments in target-date funds are not guaranteed against loss of principal at any time and account values can be more or less than the original amount invested—including at the time of the fund’s target date. Also, investing in target-date funds does not guarantee sufficient income in retirement.

Note to All Readers: The information contained herein reflects, as of the date hereof, the views of AllianceBernstein L.P. (or its applicable affiliate providing this publication) (“AB”) and sources believed by AB to be reliable. No representation or warranty is made concerning the accuracy of any data compiled herein. In addition, there can be no guarantee that any projection, forecast or opinion in these materials will be realized. Past performance is neither indicative of, nor a guarantee of, future results. The views expressed herein may change at any time subsequent to the date of issue hereof. These materials are provided for informational purposes only and under no circumstances may any information contained herein be construed as investment advice. AB does not provide tax, legal or accounting advice. The information contained herein does not take into account your particular investment objectives, financial situation or needs and you should, in considering this material, discuss your individual circumstances with professionals in those areas before making any decisions. Any information contained herein may not be construed as any sales or marketing materials in respect of, or an offer or solicitation for the purchase or sale of, any financial instrument, product or service sponsored or provided by AllianceBernstein L.P. or any affiliate or agent thereof. References to specific securities are presented solely in the context of industry analysis and are not to be considered recommendations by AB. This is not intended to be legal advice (and should not be relied upon as such) but just a discussion of issues. Plan sponsors should consult with their legal advisors for advice regarding their particular circumstances.

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