Qualified default investment alternatives (QDIAs) such as target date and target risk funds can be critically important tools for helping participants invest for retirement. As these options become more popular with plan sponsors and participants, some are exploring the use of custom options.
The “target date” in target date funds denotes the approximate date when investors might plan to start withdrawing their money for retirement. From such a fund’s inception, the objective is usually to have the asset allocation within the fund and the levels of associated risk change over time, so that, for example, the portfolio gradually becomes more conservative as a fund’s target date approaches. Target risk funds do not have an associated target date, but rather their assets are managed towards a certain level of risk (e.g. Conservative, Moderate, Aggressive, etc.). In both types of funds, principal is not guaranteed at any time, including when a target date is reached.
