Investing October 2, 2019

A Target-Date Fund Industry Snapshot

The five leading TDF families by assets dwarf their competition, and the biggest provider keeps getting bigger.

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The 2019 PLANSPONSOR Target-Date Fund (TDF) Survey and Buyer’s Guide includes a sharable TDF industry snapshot, meant to be a helpful resource for retirement plan sponsors and their service provider partners as they conduct investment committee training and fund menu reviews. 

Among the insights included in the snapshot is the fact that the top five TDF families continue to dwarf the competition—and the biggest provider continues to get bigger. Vanguard, which managed 33.6% of TDF assets in 2017, has grown to control 37.8% of the marketplace. The four next-biggest providers are Fidelity, which controlled 21.2% of assets in 2017 versus 19.4% in 2019; T. Rowe Price, controlling 16.4% in 2017 and 12.4% in 2019; American Funds, managing 7.2% in 2017 and 10.5% in 2019, making it the only other top-five provider besides Vanguard to gain market share; and J.P. Morgan, which managed 5.0% of TDF assets in 2017 and now manages 4.3%.

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Those figures imply that all other TDF providers manage just 15.6% of the marketplace—down from 16.6% in 2017. The other largest providers include Nuveen/TIAA, BlackRock, Principal Funds and John Hancock Investments.

The Broader TDF Marketplace

The TDF Survey and Buyer’s Guide examines various other aspects of the TDF landscape, including a deep dive into the custom market. Data points include the names of custom TDF families and their providers, the number of funds in a given custom series, the underlying fund management approach, glide path fund landing points, asset totals and more.

The Buyer’s Guide also includes an index of TDF products and providers. Each fund page includes an overview, fund attributes, a breakdown of assets under management and information about the use of unaffiliated managers.

Finally, advisers with upcoming plan participant or sponsor meetings can take advantage of the visually engaging industry snapshot, which, for example, maps the market share of the top five TDF families against the rest of the TDF industry combined. We hope you will share some of what you read with a client or colleague!

Administration October 2, 2019

Lower Asset Growth Hampers State and Local Pension Outlook

While liability growth has declined in the past two decades, asset growth has been even slower.

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The funded status of state and local pensions increased in fiscal year 2018 to 72.8%, according to the Center for Retirement Research at Boston College’s “Update on the Funded Status of State and Local Pension Plans.” However, the funded status has been largely flat since 2008 and is well below its peak of 102.7% in 2000.

Liability growth has steadily declined in the past two decades, from 7.7% in 2002 to 3.8% in 2018—but asset growth has been even slower. In terms of asset growth, the average annualized investment returns for public plans was 5.9% and cash flows averaged about -2.7%. Combined with the relatively small impact of actuarial smoothing, actuarial assets have grown by only 3.5% per year since 2001. Because actuarial assets and liabilities grew by 3.5% and 5.6%, respectively, the aggregate state and local funded ratio declined from 103% in 2001 to 73% in 2018.

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Given these trends, if plan sponsors want to improve plan funded ratios, a key challenge is to increase their asset base through contributions. One way forward is to adopt more stringent funding methods, such as level-dollar amortization and shorter amortization periods.

Another, more important, change is to lower assumed investment returns, which would help ensure funding progress by further raising required contributions.

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