Lifecycle funds or target-dated mutual funds are now being offered as one of the many retirement investingĀ  options under most 401k plans. These funds shift their asset allocation to become more conservative as the target retirement date draws closer. However, as the current economic crisis unfolds, it has become clear that not all funds of the same maturity perform similarly. Among the crop of 2010 target retirement funds, the 2008 returns vary from -3.6% to as much as -41.3%. Under the Pension Protection Act of 2006, companies were able to set lifecycle funds as default funds in a 401K plan if the employee did not choose his of her own investments instead of traditionally conservative options such as bond or money market funds.

These funds also provided a sense of pick-once-and-forget-it as the asset allocation was automatically handled. As the baby boomers get close to retirement, it has now become a special concern to the Senate’s Special Committee on Aging, which is now asking Department of Labor for establishing regulations for composition of and advertising of these funds.

I think an employee or anyone should never invest in any fund or other security without his own due diligence. Period. Encouraging retirement savings by making it easier for someone to invest without educating himself or herself on the different choices is always a bad idea and while better disclosure is always good, more should be done to promote awareness and education for the employees. Afterall, it is their retirement that is at stake.