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Article Excerpt
Byline: Richard Stolz
401(k)plan sponsors still are grappling withfallout fromthe financial market meltdown that not only hammered employees' account balances, but rattled their confidence in their ultimate prospects for retirement.
The apparent return to some semblance of normalcy, however, is giving employers and 401(k) service providers the opportunity to emerge from their bunkers and explore new approaches to delivering retirement benefits - as well as to validate or discard the old ones. And, given the inevitable squeeze on the corporate bottom line associated with a severe recession, 401(k) sponsors also are seeking ways to get by with less, asking vendors for concessions on fees or looking to more economical investment vehicle legal structures.
"We're looking for opportunities to reduce costs," notes Brant Suddath, director of benefits for Home Depot, whose 401(k) plan has about 150,000 participants and $2.25 billion in assets.
Like many plan sponsors, prior to the recent financial crisis, Home Depot switched to a target-date fund series for its default investment selection. And also like many employers, Home Depot took notice of the fact that high-equity allocations for target-date funds, even those intended for employees on the threshold of retirement or already retired, resulted in sharp declines when the stock market tanked.
"The market's performance gave us pause with regard to our 2010 fund and our 'in retirement' fund," Suddath says. "We did think about whether the assets were allocated appropriately. We're paying more attention to that issue," although not necessarily making any immediate changes, he adds.
More than a blip
Target-date funds (along with their cousins, asset allocation funds) totaled less than 10% of defined contribution plan assets at the beginning of the year, but about 22% of current participant contributions are earmarked for them, according to R.G. Wuelfing & Associates, an industry research and consulting firm. Target-date funds had been a mere blip on the screen prior to the 2006 Pension Protection Act, which sanctioned them as a qualified default investment alternative.
Last year, 53% of plan sponsors used target-date funds as their default option, according to the firm's president, Robert Wuelfing. But their rapid growth rate may be leveling off, he predicts. Still, he notes that plan participants increased allocations to target-date funds last year. He predicts target-date fund assets "will continue to grow, if for no...
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