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Are Custom Target Date Funds Right for Your Plan?

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This is the first installment in a series of planned white papers Aon Hewitt Investment Consulting, Inc. (AHIC) is writing on next-generation solutions for defined contribution plans. As the role of DC plans in providing retirement security grows, AHIC believes the efforts of plan sponsors to improve how well their plans address participant retirement needs must grow as well. Look for subsequent editions in this series to focus on topics such as:

  • Re-enrollment

  • Incorporating retirement income solutions

  • Structuring core investment lineups

  • Transitioning monitoring and governance processes to better focus on participant outcomes

As target date funds (TDFs) continue to take an increasingly important role in providing improved retirement security within defined contribution plans, more employers are choosing to improve this simplifying innovation through customization.

This trend overlays the rapid growth in usage of target date funds. According to Aon Hewitt’s survey, Trends & Experience in Defined Contribution Plans1, only 33% of plans offered target date funds in 2005, and now they are offered by the vast majority of plans. The proportion of plan assets in target date funds has increased markedly as a result, with the TDF assets in some plans exceeding 50% of total assets. This momentum is expected to continue as the proportion of plans using TDFs as their qualified default investment alternative (QDIA) increases. Given the growth in plans deploying auto-enrollment and auto-escalation, the flow of assets making its way into TDF products is becoming a tsunami. These trends, coupled with unprecedented participant acceptance of this simplifying innovation in plan investment design, are generating widespread interest among plan sponsors in designing and deploying customized target date funds to better meet participant needs.

1 According to Aon Hewitt’s 2011 survey Trends & Experience in Defined Contribution Plans, between 2005 and 2011, the proportion of plans using auto-enrollment increased from 19% to 56% and the percentage using auto-escalation increased from 9% to 51%.

About Aon Hewitt Investment Consulting, Inc.

Aon Hewitt Investment Consulting, Inc., an Aon plc company (NYSE:AON), is an SEC-registered investment adviser. We provide independent, innovative solutions to address the complex challenges of over 480 clients in North America with total client assets of approximately $1.7 trillion as of June 30, 2014. More than 270 investment consulting professionals in the U.S. advise institutional investors such as corporations, public organizations, union associations, health systems, endowments, and foundations with investments ranging from $3 million to $310 billion.

About Aon Hewitt

Aon Hewitt empowers organizations and individuals to secure a better future through innovative talent, retirement and health solutions. We advise, design and execute a wide range of solutions that enable clients to cultivate talent to drive organizational and personal performance and growth, navigate retirement risk while providing new levels of financial security, and redefine health solutions for greater choice, affordability and wellness. Aon Hewitt is the global leader in human resource solutions, with over 30,000 professionals in 90 countries serving more than 20,000 clients worldwide. For more information, please visit

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Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc. This document is intended for general information purposes only and should not be construed as advice or opinions on any specific facts or circumstances. The comments in this summary are based upon Aon Hewitt Investment Consulting’s preliminary analysis of publicly available information. The content of this document is made available on an “as is” basis, without warranty of any kind. Aon Hewitt Investment Consulting disclaims any legal liability to any person or organization for loss or damage caused by or resulting from any reliance placed on that content. Aon Hewitt Investment Consulting reserves all rights to the content of this document.

Investment advice and consulting services provided by Aon Hewitt Investment Consulting, Inc., an Aon Company.