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Fiduciary Handbook for Understanding and Selecting Target Date Funds
by John Lohr, Mark Mensack & Ron Surz
Three experts collaborate to improve target date funds by clearing up harmful misunderstandings.
The authors believe that target date funds are a good idea that can and should be more protective and productive, so they’ve written a book to educate fiduciaries. Most assets in TDFs are there by default. Employers (fiduciaries) choose TDFs, not employees, so the authors direct their comments to fiduciaries, primarily financial consultants.
Substantial confusion surrounds target date funds, incredibly some of it promulgated by regulators. Here are a few examples of the book’s clarifications:
- The most menacing problem is risk near the target date. TDFs are actually riskier today than they were in 2008, when 2010 funds lost 25-35%. There’s a mistake waiting to happen again, this time with more devastating consequences because assets have quintupled from $200 billion in 2008 to $1 trillion today. Someone is going to get sued this time. There’s no fiduciary upside to taking risk at the target date.
- The current practice of not vetting TDFs is irresponsible and shocking. The fiduciary duty of care requires a sincere effort to select the best and to protect beneficiaries from foreseeable harm. Many fiduciaries are breaching their fiduciary duty of care when it comes to TDFs. The duty of care is like the obligation to protect your children. It’s more than a legal requirement; it’s a moral imperative.
- “To versus Through” is a distinction without a difference, first concocted at the 2009 SEC-DOL joint hearings on TDFs.
- The DOL says the selected TDF should fit the employee demographics of the company. But the only demographic that matters is the financial unsophistication of defaulted participants.
The book is written from three distinct perspectives that you can identify with. As a 3(38) adviser, Ron Surz writes from the perspective of a fiduciary. Co-author John Lohr sees TDFs from the perspective of an ERISA attorney, and the third co-author, Mark Mensack, looks at TDFs through the eyes of a professional ethicist. Enjoy the views.
After you read the fiduciary handbook, the authors would appreciate a review on Amazon.
Enjoy the views.