Choosing the right target date fund is critically important for plan sponsors and yet it’s a decision that gets made by default far too often, according to Mark Davis, senior vice president and financial adviser with CAPTRUST Financial Advisors. Davis made his remarks as part of a panel discussion at the ASPPA 401(k) Summit, being held this week in Las Vegas.

Particularly in the smaller plan market, he noted, plan sponsors often choose their recordkeeper first, then default to the investment options offered by the recordkeeper when it should be the reverse.

“Choose your target date fund first then choose your recordkeeper,” he said. “At the end of the day, you’re going to be held legally responsible for the investment choices, not the recordkeeper.”

Steven Geisert, vice president with PIMCO, agreed. “If you’re going to the movies, do you pick the movie theatre first or do you pick the movie first and then figure out where it’s playing?” he said. “So if you’re trying to get to a target date space you pick what you want first then you figure out where it’s playing. Unlike a movie theatre, though, you can call them up and say ‘it’s not playing there but you’ll play it for us?’ and if you’re a big enough plan they’re going to play it for you.”

Among other themes discussed were alternative investments. “We argue that that should be done though a brokerage account capability and keeping the core simple,” said Davis.

Bob Benish, interim president and executive director with the Plan Sponsor Council of America said talk is cheap among many plan sponsors. For example, plan sponsors may talk about alternatives or reducing the number of funds in their investment line up but, according to PSCA research, the average number of investment funds in a plan is 19.

“Everybody likes to talk about alternatives as something new but nobody wants to be the first one,” he said.

 

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