401(k) Specialist Issue 1 - 2023 - 34

401(k) PRODUCTS
Would fiduciaries continue to choose a
TDF that bears the name " Risky " ? Perhaps.
Then in February 2013 the DOL issued
TDF tips that advise fiduciaries to match
their TDF to workforce demographics and
to make an explicit choice between To and
Through glidepaths.
A one-size-fits-all vehicle can only match
one demographic and it should be the one
demographic that all defaulted participants
have in common, namely lack of financial
sophistication, because most assets in
TDFs are from defaulted participants. This
demographic argues for safety, especially at
the target date. No surprise, surveys report
that most of these defaulted participants
believe their lifetime savings are protected
against losses.
As for the other DOL guidance, ToThrough
is a distinction without a difference
because some " To " funds are riskier
than some " Through " funds at the target
date.
More recently two Congressional chairs
have asked the Government Accountability
Office (GAO) to review TDF risk and
explain why the TDF of the Federal Thrift
Savings Plan (TSP) is so much safer at its
target date, with 70% in Fund G guaranteed
by the US government.
Morningstar recently reported Way Too
Much Risk in 401k Target-Date Fund
Glidepaths, echoing the concerns of these
Congressional chairs.
This GAO study
Ron Surz
is very important
because TDF
participants should
be protected as they
near retirement, but
they're not. Countering
this concern,
some have argued
that TDFs are too
conservative based on
the lost opportunities
over the past 13 years, but these arguments
ignore SORR. Unfortunately, the 60/40
stock/bond mindset is entrenched, especially
in the press.
After the Target Date: Retirement Glidepath
You want to approach retirement with savings protected, but because safe assets currently
earn low returns, you'll want to re-risk in retirement. An optimal post-retirement glidepath is
provided by the research of Dr. Wade Pfau and Michael Kitces in their Reducing Retirement
Risk with a Rising Equity Glide Path.
Pfau and Kitces find that the optimal glidepath in retirement starts at 10-20% in equities
and re-risks during the ensuing 30 years to 40-50% equities. The safe starting point defends
against Sequence of Return Risk and the re-risking extends the life of assets, increasing the
odds of lasting a lifetime.
Beginning retirement at 10-20% equities requires ending our working life at 10-20%. This
leads to a U-shaped glidepath like the patented path shown in the graph at right.
Graphic courtesy of Target Date Solutions
Conclusion: Will TDFs change?
TDFs did not change following the 2008 crisis. In fact, they became riskier. So why would
they change now? Because there's much more at stake, and we've hopefully become smarter.
Also, lawsuits could force change, as they did with excessive fees.
This time, unlike 2008, there could be lawsuits for excessive risk that ignores SORR, a
very well documented threat to retirement with dignity. Excessive risk lawsuits could be even
more meritorious than excessive fee lawsuits because the harm could be enormous.
A repeat of 2008 will drain $300 billion away from participants in 2020 funds alone. Even
if lawsuits don't happen, employers will be pressured to compensate for the losses.
The fiduciary Duty of Care is like our responsibility to our young children. Defaulted
participants should be protected from avoidable harms.
Stay tuned.
Ron Surz is president of Target Date Solutions, developer of the patented Safe Landing Glide Path, Soteria
personalized target date accounts, and Age Sage do-it-yourself investing. He is also co-host of the Baby
Boomer Investing Show. His passion is helping his fellow Baby Boomers at this critical time in their lives when
they are relying on their lifetime savings to support a retirement with dignity, so he wrote a book Baby Boomer
Investing in the Perilous 2020s and he provides a financial educational curriculum .
34
ISSUE 1 2023 | 401kSpecialist.com

https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/fact-sheets/target-date-retirement-funds.pdf https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/fact-sheets/target-date-retirement-funds.pdf https://401kspecialistmag.com/401k-participant-views-on-communication-tdfs-and-lifetime-income/?utm_source=email&utm_medium=link&utm_campaign=09252021_wk&utm_term=Practice&utm_content=ron@ppca-inc.com https://401kspecialistmag.com/a-target-date-fund-recommendation-to-congress/ https://401kspecialistmag.com/way-too-much-risk-in-401k-target-date-fund-glidepaths-morningstar/ https://401kspecialistmag.com/way-too-much-risk-in-401k-target-date-fund-glidepaths-morningstar/ https://401kspecialistmag.com/way-too-much-risk-in-401k-target-date-fund-glidepaths-morningstar/ https://401kspecialistmag.com/dont-fail-to-protect-financially-naive-401k-beneficiaries/ https://targetdatesolutions.com/index.shtml https://targetdatesolutions.com/pdf-source/Patent-Awarded.pdf https://targetdatesolutions.com/articles/Introducing-Soteria.pdf https://targetdatesolutions.com/articles/Introducing-Soteria.pdf https://www.targetdatesolutions.com/AgeSageHome.php https://babyboomerinvesting.show/ https://babyboomerinvesting.show/ https://www.amazon.com/dp/B093N8FVJY?ref_=pe_24209330_416826860 https://www.amazon.com/dp/B093N8FVJY?ref_=pe_24209330_416826860 https://learnformula.com/search?type=courses&q=ron%20surz http://www.401kSpecialist.com

401(k) Specialist Issue 1 - 2023

Table of Contents for the Digital Edition of 401(k) Specialist Issue 1 - 2023