Despite their tremendous growing popularity for their set-it-and-forget it convenience of automatically reallocating equity-to-fixed income ratios every year for 401(k) investors, target-date mutual funds may not be the best option for defined contribution plans.

Thanks to the Pension Protection Act of 2006, target-date funds have become a default option in many 401(k) and 403(b) defined contribution plans. However, analysts stress that target-date funds, which transition investments from growth to income as an investor nears retirement, are not all alike. So an employee could get stuck with a fund that is inappropriate for his or her tolerance for risk and cash flow needs.

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