Target-Date Fund Fees Decrease

A review from BrightScope, based on the lowest-cost institutional share class for all TDFs, which consists of 52 TDF series made up of 479 individual funds managed by 39 asset managers, shows fees fell to an average of 67 basis points (bps), down from 70 bps in 2012 and 72 bps in 2011. Assets rose 24%, to $625 billion in Investment Company Act of 1940 funds. If collective investment trust (CIT) and pooled separate account TDFs were included, BrightScope estimates total assets would be closer to $900 billion.

In 2012, asset managers closed two and debuted two TDF series, the first time there was a reduction in target date series. In 2013, four new TDF series were introduced: JHancock Retirement Living Through II, KP Retirement Path, Strategies Advisers Multi-Manager and T. Rowe Price Target Retirement.

Management of target-date funds’ glide paths held steady last year, with equity at the starting point of TDFs averaging 41%, up from 40% the previous year. Equity at the landing point averaged 30%, consistent with the previous year. For 2014, 42% of the TDF fund families (22 of the 52 fund families) brought their glide path to its most conservative position at the target date, denoting that these funds are “to” retirement rather than “through” retirement.

All four of the new series introduced in 2013 are “through” funds. TDF asset managers are clearly favoring “through” funds, BrightScope says, as “through” funds now have 11 times more assets under management than “to” funds.

As to whether the TDF funds on retirement plan platforms are proprietary or from a third party, BrightScope analyzed data on 16,000 401(k) plans between 2010 and 2012 and found proprietary assets declined by five percentage points, from 57% in 2010 to 52% in 2012. “This trend indicates plan sponsors are looking off-platform for the best target-date funds for employees, therefore making the distribution channel more competitive,” BrightScope says.