A Simpler Explanation of Target-Date Funds

Using easy-to-understand terminology, supported by animation and infographics, this explanation will cover J.P. Morgan’s SmartRetirement series of target-date funds. It will also be available to all SmartRetirement clients, regardless of the recordkeeper servicing their plan.

“Research has shown that while defined contribution plan participants want access to target-date funds for retirement savings, they do not understand some of the most basic components of how target-date funds work,” said Catherine Peterson, director of Retirement Insights at J.P. Morgan Asset Management. “Given the growing importance of target-date funds in plans, we developed this program to specifically address identified participant knowledge gaps.”

Peterson pointed to industry studies, which continue to show that many participants misunderstand key ideas such as what the date in the fund name actually means, the fact that the funds are already fully diversified and that target-date funds do not provide guaranteed income in retirement.

While many firms want to provide more information to participants, J.P. Morgan’s recent research found that 75% of participants don’t take the time to read all of the investment information currently provided to them. Also, 44% said they are already getting more information than they can absorb.

The program explains what target-date funds are, how they work and how to choose a SmartRetirement fund. It is also structured to be accessible to different types of investors, such as “do-it-for-me” investors, who want only the very basics, and “do-it-myself” investors, who are looking for an extra level of detail.

For those trying to make a decision about target-date funds, the program helps them understand if the solution is right for them. And for those participants that have been defaulted into the target-date appropriate for their age, it helps them understand what they are invested in.

The program also includes a dynamic website with a video on how a glide paths works, thoughts from those invested in target-date funds or thinking about investing in them, and a closer look at the detailed asset allocation by vintage, as well as an infographic-style brochure and product profiles.

“Considering the critical role that target-date funds play in 401(k) plans and successful retirement outcomes, we think it is very important for plan sponsors to think about how these best practices can be applied to participant communications. It’s time to raise the bar on target-date fund communications and ensure that the industry is taking every opportunity to educate and inform in a way that is accessible and understandable to all investors,” said Peterson.

The simplified information can be found here.