Themes in ERISA* litigation continue to shift away from fees to a focus on results. Last year, cases were brought against a prominent passive provider. This year, a large active provider is in legal jeopardy after allegations of chronic underperformance. While none of these cases have yet proved their merit by moving past the motion to dismiss, the spotlight on results gives plan fiduciaries a strong reason to consider their target date fund (TDF) selection and monitoring processes.
Fundamentally, the question must be asked: Should a decision as important as selecting a TDF provider, with which a participant could be invested for 70 years or more, really be primarily focused on costs? Or is a more comprehensive view needed, one that considers fees, outcomes, and the ability to smooth market volatility? Indeed, looking at the last 10 years of history, the variability of results in the TDF industry is more than three times the difference in fees.