Can Your Boss Fix Your Funds

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For decades, Dole Food has stuck mostly to its chief business ? picking and selling fruit. But recently, the California-based food company branched into a new line of work: offering mutual funds designed specifically for its employees.

No, there won?t be a Dole Aggressive Stock fund in grocery aisles soon, but the firm is taking an unusual step amid the flap over the U.S.’s rapidly growing ? and controversial ? retirement product: target-date funds.

The funds, which are now part of most company 401(k) plans, are marketed as a “set it and forget it” solution to retirement, with stock allocations automatically shifting as someone reaches retirement (or his “targeted” year). But far from protecting future retirees, the funds lost 33 percent in 2008, providing nearly no protection from the market crash.

So instead of just choosing a ready-made target-date plan, Dole has, with the help of an outside investment firm, come up with a custom-designed fund drawing from existing employee choices from six separate fund companies. Dole is just one of a number of Fortune 500 firms, including Boeing and Intel, that are offering revamped target-date funds to employees. About 15 percent of large corporations are now customizing their target-date funds, up noticeably from last year, according to the Profit Sharing/401k Council of America, a trade group.
A nonfinance firm meddling with mutual funds might sound like a scary development, but some experts say it could be a boon for employees, who currently have more than $200 billion in target-date funds. Instead of the 55 percent equity stake investors in several of the more popular target-date products would have at retirement, for instance, many big employers opt for a more conservative glide path that meets the needs or saving habits of their specific workers. “A company that froze its pension plan may want a more conservative offering than one that?s still supporting a big chunk of retirees,” says Pamela Hess, lead retirement researcher at human resources consulting firm Hewitt Associates.
Plan sponsors (in many cases, an employer) have a fiduciary responsibility to do what?s in the best interest of their employees ? fund companies do not. Some money managers, such as Charles Schwab, have lowered the equity allocation in target-date funds, but many financial shops are sticking with their pre-crash allocation formulas. Still, experts say investors should take a careful look at any life cycle fund, as equity allocations can vary greatly.

No, there won?t be a Dole Aggressive Stock fund in grocery aisles soon, but the firm is taking an unusual step amid the flap over the U.S.’s rapidly growing ? and controversial ? retirement product: target-date funds. The funds, which are now part of most company 401(k) plans, are marketed as a “set it and forget it” solution to retirement, with stock allocations automatically shifting as someone reaches retirement (or his “targeted” year).

But far from protecting future retirees, the funds lost 33 percent in 2008, providing nearly no protection from the market crash. So instead of just choosing a ready-made target-date plan, Dole has, with the help of an outside investment firm, come up with a custom-designed fund drawing from existing employee choices from six separate fund companies.

Dole is just one of a number of Fortune 500 firms, including Boeing and Intel, that are offering revamped target-date funds to employees. About 15 percent of large corporations are now customizing their target-date funds, up noticeably from last year, according to the Profit Sharing/401k Council of America, a trade group.

A nonfinance firm meddling with mutual funds might sound like a scary development, but some experts say it could be a boon for employees, who currently have more than $200 billion in target-date funds. Instead of the 55 percent equity stake investors in several of the more popular target-date products would have at retirement, for instance, many big employers opt for a more conservative glide path that meets the needs or saving habits of their specific workers.

“A company that froze its pension plan may want a more conservative offering than one that?s still supporting a big chunk of retirees,” says Pamela Hess, lead retirement researcher at human resources consulting firm Hewitt Associates.

Plan sponsors (in many cases, an employer) have a fiduciary responsibility to do what?s in the best interest of their employees ? fund companies do not. Some money managers, such as Charles Schwab, have lowered the equity allocation in target-date funds, but many financial shops are sticking with their pre-crash allocation formulas. Still, experts say investors should take a careful look at any life cycle fund, as equity allocations can vary greatly.

2009 Copyright The New York imes Syndicate