Clearly, target-date funds are the persona non grata of the retirement plan these days, with their abysmal 2008 performance sparking federal hearings on whether the funds needed tighter regulation.

However, even though about a third of retirement plan participants are enrolled in target-date funds, and they are a go-to option for employers auto-enrolling employees, EBN contributor Wayne Hanson says that it’s not target-date funds’ fault. Their poor performance only shined a glaring spotlight on the giant fault lines that already existed within the U.S. retirement and financial systems. In other words, target-date funds are the messenger — and we all know that you don’t shoot the messenger.

“Interestingly, at least from my recollection, there was little or no discussion about target-date funds prior to the current recession, even though the ground rules around these funds have not changed from the time they were first introduced,” Hanson writes. “However, the recent underperformance of these funds has caught the eye of many stakeholders [and] I have a deep concern that their recent short-term performance may lead to taking a ‘throw out the baby with the bath water’ approach.”

Click here to read Hanson’s ideas for keeping the baby and the bath water, so to speak, when it comes to target-date funds.


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