Ten Years Later: What have Target Date Funds Learned About Recessions and 401(k) Plans?

Consider what a glide path can and should offer participants in view of these ideals and in relation to the realities of today’s workplace and economic environment.

Franklin Templeton Multi-Asset Solutions

PREVIEW

The global financial crisis is more than ten years in the rear-view mirror and equity markets have reached new highs. A spurt of volatility at the end of 2018 reminded us just how painful a 10% drawdown in one month can feel, especially to a participant who was set to retire on December 31. It leads us to ask the question: just how much equity risk is appropriate in the home stretch of retirement savings? And what can target date funds do to mitigate the effects of potential bear markets in those critical years?

In this paper we will:

  1. Review the impact of 2008 on retirement plans and what asset managers have done to address the potential for prolonged bear markets to recur

  2. Discuss demographic and behavioral shifts that have the potential to destabilize the target date fund landscape

  3. Examine the glide path in relation to participant “ideals” for a confident retirement:
    - Highest potential portfolio value at retirement
    - Lower risk of sharp declines in any given year, especially right before retirement
    - Higher likelihood of achieving a sustainable retirement income

  4. Consider what a glide path can and should offer participants in view of these ideals and in relation to the realities of today’s workplace and economic environment.