MStar Grades Target Date Funds' Stability
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Monday, May 14, 2012

MStar Grades Target Date Funds' Stability

Putnam [profile], DWS [profile], ING [profile] and Wells Fargo [profile] may be facing new questions from their 401(k) plan sponsor clients, thanks to Morningstar.

Just last week, Morningstar researchers released their annual Morningstar Target-Date Series 2012 Industry Survey [survey], which highlighted flatlining market share growth by the Big Three and identified smaller providers as standouts in terms of organic growth. Meanwhile, the report also introduced the Glide Path Stability Score (GPSS), which identifies shifts in the entire glide path of target-date funds and can be an evaluation of their stability. But what does this mean for providers and sponsors?

Morningstar's Josh Charlson explained GPSS in an article this morning, which also detailed both three-year and since-inception GPSS fluctuations for a number of plan providers. GPSS scores below 1.5 are considered stable, between 1.5 and 3.0 are somewhat unstable, and beyond 3.0 are progressively more unstable. Among providers, DWS Life Compass, the ING offering, the Putnam RetirementReady funds and the Wells Fargo offering showed the highest GPSS since inception. While Charlson explained that inflated GPSS scores do not necessarily indicate fund instability, he did point out that providers with higher GPSS scores should expect pointed questions from plan sponsors regarding these figures.

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