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What's the Real Story with Target Date Funds?

Recently, target date funds have received significant attention, much of it negative because of their sharply negative performance in the recent market downturn.  This also led to questions about their marketing and disclosure practices, and whether they are delivering what they promise to investors. The SEC has promised to make target date funds a priority in their focus on protecting financial consumers.  In response, the Investment Company Institute published a paper, "Dispelling Target Date Fund Myths with the Facts" (apparently available only to the ICI's members), attempting to "set the record straight" about these controversial investment and savings vehicles.  BrightScope, an independent provider of 401k ratings and financial intelligence, has drafted a rebuttal to the ICI paper, "Real Facts About Target Date Funds," and posted it on their blog, BrightScope Blog.  BrightScope's rebuttal paper asserts that in its defense of target date funds, "the ICI misrepresented many of the basic facts about target date funds and painted an overly rosy picture of the target date fund marketplace." BrightScope is careful to note, however, that it does not oppose target date funds:

The authors are generally supportive of the growth of target date funds. It is our belief that they hold great promise for the generation of American workers who will be dependent upon defined contributions plans for their retirement income security. But, if these instruments are to be the “number one savings vehicle in America” we think they should be held to a very high standard of quality. Like any new investment instrument they are not without their flaws, but it is up to market participants and the regulators to ensure that the funds, their regulation, and their disclosure are aligned in the best interests of American workers.


The BrightScope paper takes on the six "myths" identified in the ICI's paper defending target date funds, and is an interesting analysis of the weaknesses and strengths of the investment vehicles.  The full text of BrightScopes paper, "Real Facts About Target Date Funds" is available at: http://www.brightscope.com/blog/wp-content/uploads/2010/02/BrightScope-Real-Facts-about-Target-Date-Funds2.pdf