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April 7, 2010, Featured Articles, 401(k)/IRA

Two Trends in One: CTFs and TDFs

By Kerry Pechter   Wed, Apr 07, 2010

Collective trust funds and target date funds are ‘made for each other,’ one analyst said. But will CTF-TDF hybrids create the same false sense of security among 401(k) participants that TDF mutual funds have?

It's too soon to say if, when or how it will affect the way Americans save for retirement, but the trend is undeniable: asset managers are creating target-date collective trust funds at a rapid rate and pitching them to 401(k) plan sponsors.

“They still have issues, but they're gaining traction,” said one 401(k) platform provider who asked not to be identified. His firm offers a range of exchange-traded funds, CTFs, and mutual funds to plan sponsors.

Of the 159 collective trust funds (CTFs) that were launched in 2009, 115 (72%) were formed as vehicles for lifecycle or target date investing strategies. From 2007 to 2009, 439 CTFs were formed, of which 241 (55%) were target date CTFs.

Both collective trusts and target date funds—especially TDFs—were handed a ready-made market when they were approved as QDIAs (qualified default investment alternatives) for 401(k) plans by the Pension Protection Act of 2006.

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