PLANADVISER - July/August 2019 - 21

Sponsors Seek Low-Cost TDFs
Providers respond with passive funds, collective trusts
MORNINGSTAR'S annual
" TargetDate
Fund [TDF] Landscape Report "
finds that retirement plan sponsors
continue to seek out low-cost targetdate
funds. This preference, in turn,
is prompting vendors to offer series
that rely on passive funds or collective
investment trusts (CITs).
Morningstar says assets in targetdate
strategies totaled more than $1.7
trillion at the end of 2018, with $1.1 trillion
in mutual funds and approximately
$660 billion in CITs. The latter saw a
$30 billion increase in assets in a year
where returns overall were negative.
Nearly all of the
$55 billion in net
flows to targetdate
mutual funds
last year went to
low-cost series
that held over
80% of assets in
index funds.
Nearly all of the $55 billion in net
flows to target-date mutual funds last
year went to low-cost series that held
over 80% of assets in index funds.
Further, assets moved to lower-cost
share classes, bringing the average
asset-weighted expense ratio down to
0.62%, from 0.66% in 2017.
However, returns of a target-date
provider's newer, lower-cost series did
not always outpace those of the legacy.
Of the 10 target-date series that replicate
a legacy offering but with lower
fees, three failed to keep pace in terms
of performance.
" Target-date funds play a central
role in the retirement success of many
Americans, as they often serve as the
default investment option in their
defined contribution [DC] plan, " says
Jeff Holt, director of multi-asset and
alternative strategies at Morningstar.
" Though growth of target-date mutual
funds stalled in 2018, the target-date
market continues to expand into newer
areas such as CITs, reflecting retireTALKING
POINTS
A Worthy Cost?
Most Americans-56%-report being
willing to incur debt to pay for their
children's college education; that debt,
on average, would be $31,000.
Source: Country Financial
Retirement Worries of People 60+
Health care costs will outpace their retirement savings
They will lose their independence
They will outlive their savings
They will be a burden to their family
Prescription drug costs will outpace their retirement savings
Source: National Council on Aging and Ipsos
56%
54%
51%
46%
43%
Overestimating Social Security
Pre-retirees-those within 10 years of
retiring-expect to receive an average of
$1,805 a month in Social Security benefits,
but retirees actually collect an average of
$1,408, a 28% difference.
Source: Nationwide Retirement Institute
planadviser.com July-August 2019 | 21
ment plan sponsors' desire to meet
demands for the low-cost strategies. "
Brooks Herman, vice president of
data and research at BrightScope, an
Institutional Shareholder Services Inc.
(ISS) business, adds: " The overall costs
of 401(k) plans have declined. "
-Lee Barney
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PLANADVISER - July/August 2019

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