The Evolving Role of Target Date Funds in Defined Contribution Plans

Defined contribution (DC) plan sponsors and advisors feel that target date funds (TDFs) have helped to address many of the major challenges they face regarding plan participation, but there is still work to be done. This study, sponsored by PGIM Investments and Institutional Investor, explores the latest insights from DC plan professionals on the state of retirement savings, plan participant behavior, the efficacy of target date funds, retirement income and more.

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Insights into Current DC Trends


The DC plan sponsors and DC plan advisors surveyed express a positive view of the momentum of DC plans overall and consider the current accumulation side of the retirement equation, aided by the utility of TDFs, as largely effective. However, they acknowledge there is still progress to be made, particularly in the area of retirement income and helping plan participants’ (especially younger participants) to take full advantage of their plans.

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Key Takeaways

The State of the U.S. Retirement System

DC plan sponsors and advisors see the U.S. retirement system and their own plans as healthy, but market volatility and interest rates are the macro trends most likely to affect their DC plans over the next three years.

The State of Plan Participant Behavior

DC plan sponsors and advisors express concern regarding plan participants’ contributions since many fail to make the maximum allowable contributions, and don’t take full advantage of contribution matching. In particular, early- and mid-career participants should consider increasing their contributions to effectively prepare for retirement.

Target Date Funds Appeal…But Room for Innovation

TDFs are seen as offering a strong value proposition to plan participants, with the majority of sponsors and advisors surveyed stating that they believe TDFs work as the sole investment vehicle for participants amid high market volatility. But plan advisors foresee evolutions in DC plan investment options on the horizon.

A Focus on Retirement Income

DC plan sponsors and advisors agree that income should be the focus for post-retirement participants. However, many advisors expressed the opinion that DC plans should be constructed to address a sponsor’s preference that participants either exit the plan at retirement, or stay in the plan beyond retirement, as this decision has important implications for plan design.

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About the Study

The survey was commissioned by PGIM Investments in collaboration with Institutional Investor’s Custom Research Lab to examine the views of defined contribution plan sponsors and advisors on what might affect their plans in the next two years, challenges in participant behavior, the role TDFs play in plans, and the question of retirement income. The questionnaire was fielded in December 2018 and includes responses from 250 DC plan sponsors and 250 DC plan advisors in North America. To supplement the survey findings, interviews were conducted with twelve plan sponsors and advisors.


The target date is the approximate date when investors plan to retire and may begin withdrawing their money. The asset allocation of the target date funds will become more conservative as the target date approaches by lessening the equity exposure and increasing the exposure in fixed income investments. The principal value of an investment in a target date fund is not guaranteed at any time, including the target date. There is no guarantee that the fund will provide adequate retirement income.

A target date fund should not be selected solely based on age or retirement date. Before investing, participants should carefully consider the fund’s investment objectives, risks, charges, and expenses, as well as their age, anticipated retirement date, risk tolerance, other investments owned, and planned withdrawals.

Prudential Day One Funds may be offered as: (i) insurance company separate accounts available under group variable annuity contracts issued by Prudential Retirement Insurance and Annuity Company (PRIAC), Hartford, CT, a Prudential Financial company, and (ii) registered mutual funds offered through Prudential Investment Management Services LLC (PIMS), Newark, NJ, a Prudential Financial company. PRIAC is solely responsible for its own contractual obligations and financial condition.

The Day One Funds, as insurance company separate accounts, are investment vehicles available only to qualified retirement plans, such as 401(k) plans and government plans, and their participants. Unlike mutual funds, the Day One Funds, as insurance company separate accounts, are exempt from Securities and Exchange Commission registration under both the Securities Act of 1933 and the Investment Company Act of 1940, but are subject to oversight by insurance regulators. Therefore, investors are generally not entitled to the protections of the federal securities laws.

Consider a fund's investment objectives, risks, charges and expenses carefully before investing. The prospectus and the summary prospectus contain this and other information about the fund. Contact your financial professional for a prospectus and the summary prospectus. Read them carefully before investing.

Mutual fund investing involves risk. Some mutual funds have more risk than others. The investment return and principal value will fluctuate and investor's shares when sold may be worth more or less than the original cost. Fixed income investments are subject to interest rate risk, and their value will decline as interest rates rise. Asset allocation and diversification do not assure a profit or protect against loss in declining markets. There is no guarantee a Fund's objectives will be achieved. The risks associated with each fund are explained more fully in each fund's respective prospectus. Consult with your attorney, accountant, and/or tax professional for advice concerning your particular situation.

This material is being provided for informational or educational purposes only and does not take into account the investment objectives or financial situation of any client or prospective clients. The information is not intended as investment advice and is not a recommendation about managing or investing your retirement savings. Clients seeking information regarding their particular investment needs should contact a financial professional.

Investment products are distributed by Prudential Investment Management Services LLC, a Prudential Financial company, member SIPC. Separately Managed Accounts are offered through our affiliates. Jennison Associates and PGIM, Inc. (PGIM) are registered investment advisors and Prudential Financial companies. QMA is the primary business name of QMA LLC, a wholly owned subsidiary of PGIM. PGIM Fixed Income and PGIM Real Estate are units of PGIM. © 2019 Prudential Financial, Inc. and its related entities. Jennison Associates, Jennison, PGIM Real Estate, PGIM and the PGIM logo are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide.

Prudential Financial, Inc. of the United States is not affiliated with Prudential plc. which is headquartered in the United Kingdom.

Investment Products: Are not insured by the FDIC or any other federal government agency, may lose value, and are not a deposit of or guaranteed by any bank or any bank affiliate.


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