Despite the rapid adoption of target date funds and the responsibilities of monitoring such funds, many fiduciaries are unclear on what their target date funds really hold. This uncertainty comes from lack of complete and comparable disclosure among target date funds. The challenges of comprehensive target date due diligence led to the creation of a white paper, Raising the Bar on Target Date Due Diligence, a collaboration undertaken by Manning & Napier and Strategic Insight.

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The Growth of Target Date Funds

Target date funds have emerged as the dominant Qualified Default Investment Alternative (QDIA) selected by plan sponsors.

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Four out of ten defined contribution
plan sponsors automatically enroll
their participants.1

Significant growth over the past several
years was enabled by the Pension Protection Act of 2006, which provided a safe harbor
for plan fiduciaries automatically investing participant assets.

$1.5 trillion
Within the next decade, target date
strategies may surpass $1.5 trillion.

Such significant projected growth may be
a driving force behind recent regulatory
emphasis regarding additional disclosure.

Enhancing Investment Selection & Monitoring

Does your IPS have enough latitude?

An Investment Policy Statement (IPS) should establish the roles and responsibilities of plan fiduciaries and outline
a prudent process for how investment alternatives are added, monitored, or changed.

A plan's IPS should also provide enough latitude to perform in-depth analysis of the investment options, but also avoid excessively stringent performance guidelines on investment alternative additions, changes,
or removals.

Percent of plan sponsors
who do not have a written
investment policy statement.1
26% Pie Chart

Core Fund Screening Criteria Is Not
Sufficient for Target Date Due Diligence.

The DOL released additional guidance for fiduciaries to follow in regards to target date fund screening and monitoring. However, truly understanding a target date fund’s underlying investments can be a challenge for plan fiduciaries.

Percent of plan sponsors
who believe that they have
a fiduciary responsibility
to evaluate the underlying
investments in target
date funds.2
81% Pie Chart

We believe plan sponsors need to focus on understanding the
fund’s investments and how they change over time.

Key Target Date Fund Screening Criteria







Raise the Bar

Fiduciary Best Practices

Fiduciary best practices should include periodic
in-person interviews with the various asset
managers selected for plan options.

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about Fiduciary Best Practices
Regular Dialogue Serves To:
  • Demonstrate ongoing monitoring of various performance drivers
  • Better examine whether a stated investment
    approach is consistently applied by the manager
  • Help manage plan failure risk
Key Considerations to Improve Target Date Transparency


Transparency of
the Portfolio Structure


Portfolio Management Coordination



Is Your Target Date Fund Transparent or Translucent?

By only providing high level information on the underlying funds, target date providers leave fiduciaries and investors uncertain what the target date portfolio actually holds.

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about Target Date Transparency

Plan sponsors and advisors can request target date fund manager candidates to report the total number of underlying holdings for each target date fund in the fund family, alongside the number of distinct holdings in each target date fund.

A Coordinated Approach

We believe a target date fund that is managed by a single portfolio manager or management team is likely evidence of a more coordinated approach that is consistent with the goals of the specific target date fund as opposed to the objective
of each of the underlying funds.

“Funds with distinct mandates, but potentially overlapping holdings, may be as difficult for the asset allocation manager to coordinate, as reviewing and performing due diligence would be for the fiduciary.”
Jeffrey S. Coons, Ph.D., CFA®

Average Number of Distinct Portfolio Managers
(Teams or Individuals) on Underlying Funds3

Is Your Target Date Fund Over-Diversified?

Greater than 5,000

When considering target date funds that may hold
more than 5,000 securities on average, plan sponsors
and advisors should consider the potential for over-diversification, as such a significant number
of holdings may produce index-like returns.


Average number of total holdings in the Manning & Napier Target Series.

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How Active is Your Target Date Manager?4

Active Share "represents the share of portfolio holdings that differ from the benchmark index holdings."5 In general, funds with a higher active share percentage indicate a truly active approach and increase the potential for outperformance relative to low active share managers.

Active Share Spectrum

Plan sponsors and advisors should consider both the total number of underlying holdings for target date fund candidates, as well as the active share measure of its most equity-oriented target date fund within the family.


Raise the Bar

To better address their fiduciary responsibility, plan sponsors and advisors should request additional information from target date providers.
  • Total number of underlying holdings
  • Total number of distinct holdings
  • Who (specifically) is making asset
    allocation decisions
  • Who (specifically) is making security
    selection decisions
  • The level of active share of the target date
    family’s most equity-oriented fund