Target date lifecycle funds were conceived as a single-investment solution for less sophisticated members of participant-directed retirement programs such as 401(k), 403(b) and 457 plans. However, the recent market environment, with extreme losses in virtually all of the high-return/high-risk asset classes coupled with the extended glide path, has resulted in severe losses in many near-date target date funds just when many leading-edge baby-boomers are nearing retirement.

It seems clear to Mercer that the trend in glide path development (the assumption that the long-term-return advantage of equity over cash will provide a sufficient increment of wealth to compensate for short-term volatility) ignores critical asset balance and behavioral factors and thus is misguided.

In this paper, "Improving Target Date Funds", we provide some background on glide path construction, the philosophy behind the use of high- return/high-risk asset classes and challenge the assumptions used in current glide path development.

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