It really doesn't matter whichtype of target date fund the plan sponsor chooses. From a fiduciaryliability standpoint, the only real concern deals with whether theTDFs contain hidden conflict-of-interest fees. (Photo:Fotolia)

Target date funds came as a godsend courtesy of the 2006Pension Protection Act. They have redefined the401(k) for both the employee and the sponsoring company (see“How QDIOs Have Changed the Fiduciary Role of 401kPlan Sponsors).

At first, they seemed so simple. Then the 2008/2009 market crashoccurred. Target date funds tanked with everything else. Andpeople—including Congress—were itching to take names. That's whenthe bloom came off the rose.

But a funny thing happened. For all the bluster, the angryvillagers with their pitchforks and torches never amounted to much.The dollars kept flowing TDFs. Financial professionals dove deepinto the underlying assets to parse target date funds. Meanwhile,the dollars kept flowing into TDFs. Worried plan sponsors tried totake actions to reduce the potential fiduciary liability presentedby target date funds. Yet, the dollars kept flowing into TDFs.

We all know no two target date funds are the same. Nuancesexist, just as nuances exist between the differing investmentphilosophies of growth and value. And this may prove an instructiveanalogy.

Stock pickers have generally placed themselves in either the“growth” category or the “value” category. Growth investors focuson earnings and price momentum. The more the stock's price goes up,the more they want to buy that stock. Any little pullback willdrive them to the exits, and the stock's prices will plummet.

Value investors, on the other hand, look at those droppingprices as a buying opportunity. They prefer stocks whose pricesfall below the accounting valuation as measured by the actualnumbers in the balance sheet and income statements. Eventually, thestock prices of value stocks begin to rise, attracting theattention of growth investments.

It's the circle of investing life. Growth investors sell tovalue investors. Value investors sell to growth investors. In theend, it's a never-ending tug-of-war between the two opposingdisciplines. They've fought with each other, each side claiming itheld the stronger argument.

For years, investors had to pick one side, and they usuallystayed true to their team. As the cycle shifted to growth, growthinvestors declared victory. When the market winds leaned to favorvalue, value investors declared victory.

Back-and-forth it went.

Then someone took a look at the actual return numbers. It turnsout, ignoring any of the typical snapshot-in-time anomalies, in the long termthere wasn't much of a different between the two investment styles.As long as investors did remain true to their school, they'dexperience similar returns as their counterparts in the rivalschool. The only real losers were those who insisted they knew whento switch teams. Market timing hardly ever works as advertised.

To/through… active/passive… it really doesn't matter which typeof target date fund the plan sponsor chooses. In fact, from afiduciary liability standpoint, the only real concern deals withwhether the TDFs contain hidden conflict-of-interest fees. They canlead to a real problem. All else, well that's simply six of one andhalf dozen of another.

Why?

The secret is the word “simply.”

Target date funds do contain aspects that require extensive duediligence on the part of the plan sponsor. Regarding the planparticipants, TDFs mean only one thing they only have to know onething: their birthday.

And if that's all it takes to get them to save more forretirement, then they're on their way to living a comfortableretirement. And isn't that the real objective?

Read more: 

• Will record flows to passive TDFs haunt savers whennext recession drops?
• Improved TDFs could lower risk, increase retirementincome
• Younger retirement plan participants flocking toTDFs