PLANADVISER - July/August 2017 - 10

THE DUTY
TO MONITOR
Selecting the right TDF is only part of the fiduciary
responsibility-monitoring it is more difficult, but necessary
T
arget-date funds (TDFs) continue to be the qualified default investment
alternative (QDIA) of choice for most retirement plans, and
many plans have kept the same fund suite in place since the QDIA regulation
was adopted. However, the nature of target-date fund construction
means that the ongoing evalution of such funds is difficult. Jamie
Bentley, National Retirement Sales Manager at PIMCO, spoke with
PLANADVISER about the challenges advisers and plan sponsors face
in the ongoing monitoring and benchmarking of target-date funds.
PLANADVISER: Why
has
PIMCO
developed a program to monitor targetdate
funds [TDFs]?
Jamie Bentley: While there are many
tools and resources to help select a TDF,
we have learned that many advisers, as
they try to build scale and efficiencies in
their practices, need tools and support
to navigate the complexities of monitoring
TDFs. As one of the larger DCIO
managers, serving more than 75,000
plans (and the advisers and consultants
that support them), we have uncovered
some best practices around TDF monitoring,
and have created a roadmap to
help advisers navigate the complexities.
Advisers have streamlined their
process for the selection of a QDIA, but
once a manager is in place, many advisers
have questions about the best way to put
together a systematic, ongoing monitoring
process.
PA: Can you talk a bit about the history of
TDFs, and what the Department of Labor
[DOL] says about reviewing these funds?
Bentley: The use of TDFs began in earnest
following the passage of the Pension
10 | planadviser
Protection Act of 2006. The 2008 financial
crisis was an eye-opening event for
many of these early TDF investors. They
saw unanticipated negative returns from
their TDF managers, even on the conservative
end of the glide path, and so they
started to look at TDF structures with
greater scrutiny.
In addition, we saw
an influx of managers entering the TDF
market who offered a variety of philosophies
and glide paths. Almost 10 years
since the crisis, TDF use has skyrocketed,
requiring a well-defined, systematic
monitoring process that goes beyond
traditional performance measures. Does
the TDF still meet plan needs, address
demographic shifts and reflect the latest
industry innovations?
In 2013, the DOL released " Target Date
Retirement Funds - Tips for ERISA Plan
Fiduciaries. " It outlined best practices and
fiduciary responsibilities for plan sponsors.
Among them was the fiduciary duty
to have a process for the periodic review
of TDFs. So not only are advisers heeding
the advice of the DOL, I think many also
see this as a competitive advantage. They
SPONSORED SECTION
can get a step ahead of their competitors by
developing a superior process and articulating
it to potential clients.
PA: What is the process and framework
that PIMCO recommends when monitoring
TDFs?
Bentley: To keep it simple, we've created a
roadmap that clearly defines four steps for
effective TDF monitoring.
Step 1 requires the development of a
timeline-a systematic approach for when
and how to review TDFs. For instance, on
a quarterly basis, a high-level review of
performance is appropriate. On an annual
basis, a review of plan objectives, modifications
in manager philosophy and changes
in plan demographics or participant needs
may be appropriate. Additionally, every
three to five years, a formal QDIA evaluation
process and/or search may be appropriate.
Even if everything seems to be
going well with the TDF manager, it makes
for good due diligence.
The second step entails defining the
process itself. We suggest a two-part
process for the annual review of TDFs,
including both plan demographics and
investment due diligence. From a demographic
perspective, have savings rates
changed in your participant base? Has
there been a change in the average income
level since the last review? Has there been
a significant increase in the number of
retirees and have they been keeping their
assets in the plan? These are just some of
the aspects plan sponsors should assess to
determine whether the plan's needs have
evolved over time.
PLANADVISER - July/August 2017

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