Morningstar - Q4 2022 - 24

Dispatches
EXHIBIT 1
2025 Vintage Return From BlackRock LifePath Index's Inception
BlackRock LifePath Index
American Funds Target Date Retirement
T. Rowe Price Retirement
Vanguard Target Retirement
Fidelity Freedom
Fidelity Freedom Index
Morningstar Category Average
0%
Source: Morningstar Direct. Data from 05/01/2011 to 07/31/2022.
Annualized Return
2
4
6.12
7.66
7.39
6.77
6.45
6.21
5.74
6
8
tilted the odds in investors' favor, so this tack
has merit.
Now aggressive and opportunistic law firms
have found a new target: past performance.
Ten companies, typically those with more than
$500 million in assets in their 401(k) plans,
face allegations that they violated their fiduciary
duty by selecting only low-cost options over
better-performing peers. However, these
allegations are made with the benefit of hindsight.
The argument hinges on whether the sponsors
should have swapped to a top-performing
target-date series in the past without knowing
whether performance trends would persist.
EXHIBIT 2
2025 Vintage Year-to-Date Returns
BlackRock LifePath Index
American Funds Target Date Retirement
Vanguard Target Retirement
Fidelity Freedom Index
T. Rowe Price Retirement
Fidelity Freedom
Morningstar Category Average
-15%
Return
Source: Morningstar Direct. Data as of 07/31/2022.
-10.74
-10.08
-11.36
-11.78
-11.89
-12.38
-11.13
-10
-5
The lawsuits compared BlackRock LifePath Index's
trailing performance starting in 2016 with the
five other series with the most assets as of the
end of 2021: Vanguard Target Retirement, T. Rowe
Price Retirement, American Funds Target Date
Retirement, Fidelity Freedom, and Fidelity Freedom
Index. Those five series' cheapest share classes
are Morningstar Medalists: American Funds Target
Date Retirement and T. Rowe Price Retirement
both earn Analyst Ratings of Gold, and the other
three are rated Silver.
EXHIBIT 3
2060 Vintage Five-Year Returns
BlackRock LifePath Index
American Funds Target Date Retirement
Fidelity Freedom Index
Fidelity Freedom
T. Rowe Price Retirement
Vanguard Target Retirement
Morningstar Category Average
0%
5-Year Annualized Return
2
Source: Morningstar Direct. Data as of 07/31/2022.
4
6
8.14
8.17
7.87
7.73
7.72
7.68
7.41
8
10
Although plan sponsors had the option to select
any of these six series in 2016, they also could
have picked any of the 54 other target-date mutual
fund series available at the time. Limiting the
peer group to only a select few, including two that
had the best track records as of the end of
2021, sets an unrealistically high bar for sponsors
choosing investment options for their plans.
A plan sponsor's fiduciary duty is to select an option
that will best serve its employees over the long
term. One of the biggest choices a plan sponsor
must make when picking a target-date fund is
whether to use a " to " glide path, which stops
lowering stock exposure at the target retirement
date, or a " through " glide path, which continues to
24
Morningstar Q4 2022
The series currently in the hot seat is BlackRock
LifePath Index. It earns a Morningstar
Analyst Rating of Gold for its cheapest share
classes, which cost 0.09% and 0.14%, and
Silver for its more expensive share classes, both
ringing in at 0.39%.
Morningstar - Q4 2022

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