Target date funds should be used with caution. Because of the wide variety of methods the plan sponsor must perform thorough due diligence to protect plan participants and themselves. Many are off target.

The lack of a consistent approach among managers also makes it difficult for plan sponsors — or advisers working on their behalf — to evaluate target date providers, leaving many wondering how best to select a target date suite that meets the unique needs and characteristics of their participant base.For plans looking for an off-the-shelf target date product suited to their participants, the due-diligence process must go beyond traditional performance-based measures such as relative benchmark performance and peer group rankings to incorporate a thorough analysis of the differences in product design and features.

Target date funds can become a hiding place for new money managers and poorly performing funds. Additionally, each participant has different needs and tolerances regardless of age. Given the importance of the retirement plan, plan sponsors should investigate using professionally managed risk adjusted globally diversified portfolios for their plan.

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