Target Date Funds
A Change in the Deseret 401(k) Plan
DMBA has been sending out emails regarding a change in the way retirement funds in the Deseret 401(k) are going to be invested. In May 2020, the preset mix asset allocation models that are currently in place will be removed from the 401(k) Plan and BlackRock LifePath index funds will be added as new investment options. The “LifePath” index funds are what the financial industry calls “target date” funds. The LifePath funds will also be the Qualified Default Investment Alternatives (QDIA) for the Deseret 401 (k) Plan. More information will be coming from DMBA in addition to the email that you received. In the meantime, here is some preliminary material regarding this upcoming change.
Where can I get more information about this investment change?
- Please watch this helpful video explaining BlackRock’s lifepath funds, and the choices BYU employees need to make: https://youtu.be/Pv0uN0AhT0g
- Here is also a link to this video in Spanish: https://www.youtube.com/watch?v=svWbTrDCkNk&feature=youtu.be
- The BlackRock LifePath index fund fact sheets are also available in the Resources and Information section under My Retirement on www.dmba.com.
What are target date funds?
Target date funds are professionally managed, diversified investments that are meant to help protect an employee’s retirement funds over the life of their employment. When your 401(k) funds are in a target date fund, they are invested in a diversified mix of global and US based stocks and bonds that adjusts automatically to become more conservative as you near retirement.
This is accomplished by the investment managers of the different funds slowly changing the portfolio’s mix of investments over time in an effort to reduce its risk as the ‘target date’ of retirement approaches.
Why is DMBA moving to these funds?
DMBA has noted a trend with some employees being in certain investment mixes at the wrong time. Some employees early in their careers have their funds invested very conservatively, limiting the value the stock market can bring over time. Other employees come into retirement with a very volatile mix, despite plans to use the money right away in retirement, and risk a downturn in the economy reducing the value of their investments right when they need them.
For other employees, the problem sometimes is that they are expected to understand how to mix stocks and bonds, and how to change that mix as their savings grow and they approach retirement, but have not been trained to do so.
Target date funds are a simple way to address scenarios like those described. Target date funds are professionally managed, diversified investments, meaning investing in only one LifePath fund can provide a robust investment solution. Employees would enroll in the fund closest to their ‘target date’—the year they turn 65. Investment professionals will carefully adjust the fund as the target date approaches.
What are some benefits of target date funds?
There are a number of benefits that come from being invested in target date funds. Target date funds can help do the following:
- Bring about consistent returns by capturing market growth through index funds during your career
- Reduce risk exposure over time by slowly adjusting the mix of stocks and bonds as you move closer to retirement
- Allow you to focus on other important aspects of life without having to figure out how to adjust the blend of stocks and bonds yourself
What is a Qualified Default Investment Alternative (QDIA)?
If you do not make an investment election, Department of Labor regulations allow your account to be invested in a default option, called a Qualified Default Investment Alternative (QDIA). The Deseret 401(k) Plan Qualified Default Investment Alternatives are the BlackRock LifePath index funds.
If you are defaulted into a QDIA, your account will be invested in the LifePath index fund that corresponds to or is closest to the year you turn 65.
For example, if you were born in 1974 you will turn 65 in 2039. That means your account will be invested in the LifePath 2040 fund—the one closest to your “target date”—if you do not make your own investment election.
What if I don’t want to move my 401(k) investments into one of the BlackRock LifePath funds?
Beginning May 15, 2020, you can choose to invest your 401(k) account in the BlackRock LifePath index funds, to move your funds into your own specified mix of stocks and bonds, or you can choose to leave your 401(k) funds invested in the current DMBA preset mix. If you do leave your money in one of the preset mixes, be aware that DMBA will no longer be managing those mixes, and you will need to select how often you want those investments rebalanced.
If you don’t log into your account on www.dmba.com before June 24, 2020, to make an investment choice, your investments will automatically transition to your target date QDIA LifePath index fund as part of a plan-wide investment re-enrollment.