Plan participants are getting another way to simplify their asset allocation decisions thanks to the Vanguard Group. The Valley Forge, Pennsylvania-based 401(k) plan provider is readying a series of targeted asset allocation funds that will be targeted primarily for retirement investors. The new funds are expected to be ready in the fourth quarter of 2003.

Each of the six new Vanguard Target Retirement Funds will be invested in a mix of equity and bond fixed income funds. Each will also have its investment allocation targeted to a specific future date. The target dates of the funds are spaced by 10 years starting in 2005 and ending in 2045. The sixth fund is a retirement income fund for those past their target date.

In theory, participants will be able to simply choose the fund with the targeted date closest to their retirement or when they expect to need the funds and allocate their entire account to that option.

"Vanguard Target Retirement Funds reflect our strong belief that balance, diversification, and low-cost are keys to investment success," said Vanguard Chairman John J. Brennan in a statement. "The funds are designed for investors seeking a simple solution to their retirement investing needs - whether they are in the accumulation, transition, or withdrawal phase."

While the idea of these funds is simple, many plan sponsors that have offered this type of investment options as core funds report that many participants continue to invest in multiple funds. Some consultants believe, therefore, that plan design and communications are a critical part of making these funds work inside of plans.

Other providers offering this type of fund include both Barclays Global Investors and Fidelity Investments.

The new funds are the third iteration of the asset allocation concept offered by Vanguard. It launched its Star asset allocation fund in 1985 and its LifeStrategy Funds in 1994. The Star fund is essentially a one-size-fits-all solution that has collected $8 billion in assets. The four LifeStratey funds have fixed asset allocations over time and hold $14 billion of assets. That means investors must make an active decision to move from fund to fund to alter their asset allocation. Neither the Star nor LifeStrategy funds have an "expiration" date.

The provider also offers investment allocation models created by Financial Engines to participants in its plans. In that case, though, participants are left with the task of fully-implementing the strategy.

Vanguard also said that it would keep the expenses on the funds down by only passing through the expenses of the underlying funds and not adding another layer of fees. It expects the expenses of the funds to fall between 21 and 23 basis points.

The component funds for the new offerings (and their expenses) include:

Vanguard Total Stock Market Index (20 bps.)

Vanguard European Stock Index Fund (33 bps.)

Vanguard Pacific Stock Index Fund (40 bps)

Vanguard Total Bond Market Index Fund (22 bps)

Vanguard Inflation-Protected Securities Fund (22 bps)

Vanguard Prime Money Market Fund (33 bps)

Vanguard says it is using the methodology developed by its Investment Counseling and Research Group to create the allocation models for the funds. It has used the methodology for investment advice programs offered by its Personal Financial Planning Service, Asset Management & Trust Services, and Fiduciary Services since the mid-1990s. 

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