Are Single-Manager Target-Date Funds Risky for Large Plan Fiduciaries?
Many US Defined Contribution (DC) plans chose a single-manager target-date fund default option following the Pension Protection Act of 2006. Single-manager target-date funds have several drawbacks, and their inflexibility poses potential risks for large plan fiduciaries. Custom target-date funds are relatively new but are already used in rougly one-third of large DC plans. This paper explores why a custom target-date fund is likely a more prudent choice than a single-manager target-date fund for large DC plans.
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