As more retirement experts voice concern overstasis in the design of target-date funds, one index provider ishoping to accelerate the next evolution in TDF design.

Standard & Poor’s Dow Jones Indices has rolled out its ShiftTo Retirement Income and Decumulation Index Series.

The STRIDE benchmark is designed to track the performance ofTDFs that hedge against longevity andinflation risk by using Treasury Inflation Protectionsecurities.

The impetus behind the new STRIDE Index Series was largely theresult of a new TDF strategy recently unveiled by Dimensional Fund Advisors.

Though the Austin, Texas-based fund company has nearly $400billion in assets under management, it only recently entered theTDF market.

Its Dimensional Target Date Retirement Income Fund seriesaddresses market, inflation and interest rate risk with anaggressive allocation to TIPs, starting as early as 20 years priorto retirement age.

Ultimately, the funds deploy as much as 75 percent of aparticipant’s assets to TIPs, which rise in value with inflation,an advantage nominal fixed-income investments do not claim.

Phil Murphy, vice president of North American Equity Indices atStandard & Poor’s Dow Jones Indices, told BenefitsPro that theTIPs-laden glide paths in the DFA funds is a completely novelapproach in the TDF space.

“Most people are conditioned in 401(k)s to monitor their accountvalue,” said Murphy. “But that single-minded focus does not takeinto account interest rate risk.”

No one knows when or if interest rate will rise, reminds Murphy.But the prospect that they may could be an issue for the majorityof TDF investors that will be heavily allocated in nominal, ornormal fixed-income products as they enter retirement.

If interest rates do go up, investors are prone to thepossibility that the yield on nominal fixed-income won’t be able tokeep up with inflation. And that could add to the possibility thatinvestors outlive their assets.

Murphy says DFA has applied a classic liability driveninvestment strategy, common in the defined benefit world, to the401(k) world, the first asset manager to do so.

To date, TIPs have been “underappreciated” by plan participantsand the general investing public, thinks Murphy.

While he cautions that there is no silver bullet in retirementplanning, Murphy expects TIPs will play a more prominent role inTDF design going forward.

“There is no substitute for saving enough,” says Murphy. “But ifsavers are diligent over their working career, this is one strategywe think can lower the uncertainty around making income lastthroughout retirement.”

In rolling out a new series of benchmarks that tracks an LDIstrategy, Murphy says Standard & Poor’s Dow Jones Indices ishoping other fund mangers will take notice of DFA’s strategy.

“We are hoping to play a role in what we see as the beginning ofa new category of TDFs,” said Murphy.

“We want this to lead to a whole new area of competition in theasset management industry,” he said.

As for the competition in indexing the new strategy, Murphy saysthe more the merrier.

“Nothing would make me happier if Morningstar and Lipper were toroll out their own indices in this area,” said Murphy.