Although target-date funds could possibly be better designed and perhaps have less disparity between their equity exposure and glidepaths, they are not to be held responsible for the current retirement shortfall many people are now facing, according to Manning & Napier. Rather, no mutual fund could adequately shield investors from the near collapse of the U.S. financial system, according to the firm.

As Patrick Cunningham, a managing director with Manning, noted, even the Senate Special Committee on Aging, in its recent Oct. 28 hearing on target-date funds, recognized in its final report that target-date funds “offer investors certain advantages generally not offered by other types of investment vehicles [and] well-constructed target-date funds have great potential for improving retirement income security.”

“The committee’s concerns regarding target-date design seem to be based on the significant differences in asset allocation and investment performance amongst the various providers of 2010 target-date funds, as well as the sizeable losses experienced by many 2010 funds in 2008,” Cunningham said.

Instead, Cunningham dismissed the widely different approaches that target-date fund managers take, chalking it up to “different perspectives” in a free market system, saying, “It really should not come as a surprise that various investment managers have different perspectives on what securities should be owned, in what percentages, and in what environments. Part of what makes the stock market function is that different investors have different perspectives.”

Cunningham also believes that the Great Recession of 2008 was somewhat of an aberration and that it is unfair to single out a fund category’s performance in a single year.

Instead, Manning & Napier advocates that plan sponsors and participants get better, clearer information on a target-date fund’s glidepath, equity exposure and overall investment discipline. In addition, the firm said, lower fees may not guarantee a better-quality, higher-performing result.

In sum, Cunningham said, “In looking for ways to improve target-date funds, the committee should be careful to avoid placing the blame for the nation’s broader retirement savings problems and the worst bear market since the Great Depression on a relatively new investment approach that only recently has started to gain widespread acceptance in 401(k) plans.

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