Target Date Fund Flaws

Here is an excellent, eye-opening article by Robert Powell at MarketWatch on Target Date Funds.  For many, target date funds are excellent investment choices.  They take care of the asset allocation question by investing in low-cost index funds without the plan participant needing to know anything about investing or needing to adjust allocations over time.  But, as you might suspect, target date funds aren't always a good choice.  Some providers just can't resist exploiting the lack of knowledge on the part of participants by throwing in high-cost funds.

Powell cites "...Legg MasonTarget Retirement Series (1.47%); Franklin Templeton Retirement Series (1.36%); State Farm Lifepath Series (1.27%); and Invesco Balanced-Risk Retirement Series (1.19%)..." for having higher-than-average costs.

The article recommends that, if your 401(k) plan has higher-than-average cost target date funds, you bring it to the attention of the plan administrator.  The plan administrator is usually a fiduciary and, thereby, by law required to act in the best interest of the Plan participants.

All of this is of even greater significance in that target date funds are the typical destination for those who don't opt out of the company 401(k).