Canadian Investment Review

Sizing Up TDFs

Written by Gerry Wahl on Thursday, February 17th, 2011 at 8:25 am

small shoesMy previous posts have covered the key conceptual issues that need to be considered when looking at TDFs. In this post I provide a very quick overview of the advantages and disadvantages of TDFs as they stand today.

It’s generally recognized that getting employees involved in planning and saving for retirement is difficult and can be costly. Retirement planning and investment education and communication programs have also had limited success. TDFs address many of these concerns and situations, which gives them the following advantages:

TDFs do provide plan members with a convenient, diversified CAP investment portfolio where the issue of too much vs. too little risk is addressed for them. For plan members who feel intimidated by having to make investment decisions (or who are too busy or not interested) TDFs are often seen as a “set it and forget it solution” allowing them to focus on other things.

At the same time, TDFs pose challenges for the plan sponsors and administrators – that leads to a series of disadvantages that they need to consider. Specifically, some of the issues that need to be addressed in providing TDFs are:

The increased governance and administrative burden and complexity of issues related to TDFs are significant and need to carefully examined.

A summary and conclusion on the appropriateness of TDFs will appear in the next post.

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