How Smarter TDF Oversight Can Reduce Costs and Risks

NOVEMBER 4, 2025

It’s easy for employers to delay reviewing their retirement plan’s target date funds (TDFs), but doing so can expose the organization to unnecessary risk, higher costs and potential litigation. As the default investment option in most retirement plans, TDFs typically hold the majority of plan assets — yet many employers fail to evaluate them regularly, even as market conditions, participant demographics and fee structures continue to evolve.

A TDF that was appropriate four years ago may now be underperforming, restructured or overpriced. In fact, average expense ratios have dropped significantly, especially for index-based and collective investment trust versions.¹

TDFs Bring Complexity and Increased Fiduciary Risk

TDFs reached a record $4 trillion in assets in 2024, and their role as a qualified default investment alternative (QDIA) makes them central to participant outcomes.¹ While TDFs provide a simple and appealing way for retirement plan participants to save and reach retirement goals, they are complex vehicles that demand deeper due diligence than standard investment options. Glide paths, asset allocation and underlying fund composition can vary widely — and these differences matter.

Recent litigation, including a $106 million Securities and Exchange Commission settlement with Vanguard, underscores the importance of transparency and prudent fund selection. The case involved misleading disclosures and tax consequences stemming from fund structure changes, which led to unexpected capital gains for retail investors.²

The U.S. Department of Labor’s (DOL’s) updated fiduciary rule, effective September 2024, requires advisors and retirement plan sponsors to act with prudence, loyalty and transparency, especially when recommending default investments like TDFs.

Strengthen Your Plan With a Proactive TDF Strategy

The DOL provides governance framework, including regular TDF reviews. At USI Consulting Group (USICG), we recommend conducting reviews annually.

Our comprehensive process includes:

• Holistic evaluation. Review TDF performance, glide path, asset allocation, underlying components, and alignment with participant demographics.
• Participant benefits. Select the most suitable TDF provider to improve retirement readiness for participants.
• Fiduciary risk mitigation. Identify and address potential litigation and compliance risks.
• Fee analysis. Benchmark fees to ensure competitive pricing and ERISA compliance.
• Long-term cost reduction. Provide TDF solutions that improve outcomes and reduce plan costs.

USICG does not manage money or offer our own proprietary investment products — which ensures our guidance is objective and focused on our clients’ goals.

Case Study: Trucking Company Benefits From Annual Review

A nationally known trucking company previously used a variety of risk-based portfolios as its QDIA for its 401(k) plan. USICG consultants identified governance gaps, including the absence of an investment policy statement (IPS) and lack of transparency in portfolio allocations.

USICG solutions:

• Drafted an IPS with DOL-aligned monitoring criteria for TDFs
• Transitioned to a prudent TDF series using a structured fund mapping strategy
• Implemented annual TDF reviews that covered glide path design, asset classes and managers, fees, and risk-adjusted returns

Results: Reduced fiduciary risk, improved participant outcomes, and stronger retirement readiness across the workforce.3