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AB unveils new blueprint for improving retirement outcomes

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Many of today's target-date funds fail to incorporate institutional-quality investment solutions and fiduciary best practices that are commonplace across most large, professionally managed portfolios. 

That’s according to a new research paper from AllianceBernstein (AB) – Designing the Future of Target-Date Funds: A New Blueprint for Improving Retirement Outcomes– which reveals that despite the new tools available to target-date funds, most retirement plans are still using traditional portfolio designs developed years ago.

AB's research paper argues that target-date funds are becoming the most critical pool of assets for meeting the retirement needs of American workers.  Over the last decade, new investment tools have come to market that allow sponsors to incorporate an improved glide path design with a broader set of asset classes, dynamic allocation and a multi-manager or open architecture structure – enhancements that may reduce risk and help build retirement income.  Despite the availability of these tools, many target-date strategies typically use a single-manager approach, focus only on stocks and bonds, have a limited static allocation strategy, and stick entirely with active or passive investing approaches rather than mixing the best of both.

This legacy approach of portfolio design could have fiduciary implications, particularly in light of the US Department of Labor's (DOL) recent commentary in its "Tips for ERISA Plan Fiduciaries," which noted that non-proprietary target-date funds could offer advantages to plan participants by diversifying their exposure to investment providers. The research stresses that plan sponsors should look to adopt a broader range of available investment strategies that can help reduce sensitivity to market, interest-rate, inflation and longevity risks at different points in the portfolio's glide path.

"While target-date fund assets have grown rapidly, innovation in these funds' investment designs have occurred at a shockingly slow pace," says Dan Loewy Chief Investment Officer and Co-Head Multi Asset Solutions at AB. "Our latest research creates a blueprint for target-date design that provides plan sponsors with a clear roadmap for building retirement income for the future.  We're looking to provide a target-date design of tomorrow that utilises a multi manager, open architecture structure, incorporates a broader collection of diversifying assets and that can dynamically adjust the glide path according to market conditions, tapping the best of active and passive investment approaches to create better solutions for participants' distribution phase."

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