Life Cycle funds

lack of disclosure and lack of return

Abstract

Life Cycle funds have been a Qualified Default Investment Option for automatic enrollment for 401(k) retirement plans since 2006. Close examination of these funds and existing benchmarks reveals little transparency or uniformity in allocation, methodology, and timing. Already $340 billion, and growing, these funds' characteristics can have a significant impact on individuals' long-term invest­ment decisions. While many studies of Life Cycle investing use simulation, our contribution is to construct simple benchmarks for empirical analysis of Life Cycle fund performance. Our analysis shows that the funds largely underperform dynamic and static benchmarks across target dates on an absolute and risk-adjusted basis.