While not a specific ERISA requirement for plan fiduciaries, a properly developed Investment Policy Statement (IPS) can be valuable to support the process undertaken by plan sponsors to prudently select and monitor the investments in the plan, including TDFs. The DOL issued guidance on the selection and monitoring of TDFs1 and the IPS should contain provisions that comply with that guidance. The guidance described a number of TDF characteristics that should be evaluated and documented as part of a prudent process and addressed the following:
- TDF objectives and risk tolerance
- Asset allocation and the underlying investments in each asset class
- Glide path (i.e., the change in the asset allocation over time)
- Qualified Default Investment Alternative (QDIA) selection criteria
- Custom vs. pre- packaged TDF
- ^Source: Target Date Retirement Funds—Tips for ERISA Plan Fiduciaries, U.S. Department of Labor Employee Benefits Security Administration, February 2013.
OppenheimerFunds is not undertaking to provide impartial investment advice or to provide advice in a fiduciary capacity.
Mutual funds and exchange traded funds are subject to market risk and volatility. Shares may gain or lose value. Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. Diversification does not guarantee profit or protect against loss.
The date in a target date fund’s name refers to the approximate year when an investor in the portfolio is assumed to retire and likely would stop making new investments in the portfolio, and may plan to start withdrawing money. Using an asset allocation “glide path” (how the asset allocation changes as the target date nears), the portfolios generally become progressively more conservative until and after the approximate date of an investor’s “transition” into retirement. An investment, including the principal value, in a target date fund is not guaranteed and a portfolio can suffer losses, including losses near, at, or after the transition date, and there is no guarantee that a portfolio will provide adequate income at and through the investor’s retirement.
Discussion of custom or pre-packaged TDFs is not intended to represent investment advice that is appropriate for all investors. Each investor’s portfolio must be constructed based on the individual’s financial resources, investment goals, risk tolerance, investing time frame, tax situation and other relevant factors.
OppenheimerFunds does not recommend any specific asset allocations. A financial advisor can suggest an asset allocation strategy designed to meet your financial goals, time horizon and risk tolerance.
These views represent the opinions of OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.