Target date funds (TDFs) have become a cornerstone of the defined contribution retirement system. Their appeal is straightforward: participants select—or are defaulted into—a fund corresponding approximately to their expected retirement date, while professional investment managers handle asset allocation, diversification and adjustments to the portfolio over time.
That simplicity has helped drive tremendous growth. According to Morningstar, target date strategies held approximately $4.8 trillion at the end of 2025. TDFs have also become the qualified default investment alternative (QDIA) of choice for many retirement plans.
But the next generation of target date funds may look considerably different from today's offerings. Greater personalization, managed accounts, private-market investments and retirement income features are beginning to reshape what an all-in-one retirement investment can provide.
For plan sponsors, these developments create new opportunities—but also new considerations for fiduciary oversight.
Traditional TDFs generally use one primary piece of participant information: age. Two 50-year-old employees invested in the same 2045 target date fund typically receive the same asset allocation even though they may have very different salaries, savings rates, account balances, outside assets and retirement goals. That's one reason personalization has become a major focus of TDF innovation.
Personalized target date funds can incorporate additional participant data to create a more individualized asset allocation while maintaining much of the simplicity of a traditional TDF. Depending on the solution, factors such as salary, contribution rate, account balance, employer contributions and estimated retirement income needs may influence the participant's investment strategy.
Interest appears to be growing. PIMCO's 2026 Defined Contribution Consulting Study found that 85% of retirement plan aggregators surveyed expect increasing plan sponsor interest in participant-level customized TDFs as a next-generation QDIA option.
The potential advantage is straightforward: rather than assuming everyone of approximately the same age should follow the same investment path, personalization attempts to better align investments with each participant's circumstances.
Managed accounts take personalization another step. Unlike a traditional TDF, a managed account typically uses multiple participant data points to develop individualized investment and savings recommendations. Depending on the program and available information, that can include age, salary, contribution rate, account balance, risk tolerance, outside assets and other financial circumstances.
The distinction between managed accounts and increasingly personalized TDFs is also beginning to blur. Both seek to move beyond age as the primary factor determining a participant's investment allocation.
Recent Morningstar research found that managed accounts improved projected retirement outcomes even after accounting for their fees and common plan features such as automatic enrollment and automatic escalation. The study estimated that managed accounts increased projected retirement wealth-to-salary ratios by 5.9% for TDF investors and by more than 11% for self-directed investors.
For sponsors, however, greater personalization needs to be weighed against additional costs and complexity. Committees should evaluate whether a managed account's personalization capabilities provide sufficient value for their particular participant population.
Another potentially significant development involves not how TDFs are personalized, but what they own.
Private equity, private credit, infrastructure and private real estate have historically been largely absent from defined contribution plans. As discussed in recent Department of Labor guidance and proposals, regulators and the retirement industry are now exploring ways these investments could become more accessible to 401(k) participants.
TDFs are widely viewed as one of the most practical vehicles for doing so. Instead of asking participants to evaluate complicated private investments individually, a professional manager could incorporate a limited private-market allocation within a broadly diversified portfolio.
The potential benefits include greater diversification and access to investments unavailable in public markets. But private investments also introduce important considerations involving fees, liquidity, valuation, benchmarking and complexity. Any potential benefits must therefore be evaluated against those additional risks.
For sponsors, private-market exposure within TDFs will likely require particularly careful due diligence and monitoring as products and regulations continue to evolve.
TDFs were originally designed primarily to help employees accumulate retirement savings. Increasingly, the industry is asking another question: What happens when participants actually retire?
Retirement income is emerging as an important area of TDF innovation. Newer solutions may incorporate guaranteed income components, annuities or other mechanisms intended to help participants convert accumulated savings into predictable retirement income.
PIMCO's 2026 study found significant momentum around in-plan retirement income solutions, with 52% of plans advised by institutional consultants already offering income-focused options and 93% of aggregators expecting their clients to add one within the next year. Target date series incorporating embedded annuity guarantees are also emerging as a potential next stage of development.
For participants, incorporating income directly into a familiar TDF structure could simplify one of retirement planning's most difficult challenges: determining how to make accumulated savings last throughout retirement.
Plan sponsors will need to evaluate issues including portability, fees, insurer strength, participant communications and how guaranteed-income features interact with the TDF's overall investment strategy.
Whether a plan offers a traditional TDF or considers one incorporating personalization, private markets or retirement income, the plan sponsor's fundamental responsibility remains unchanged.
The Department of Labor has long emphasized that fiduciaries should establish a prudent process for selecting and periodically reviewing TDFs. Among other considerations, sponsors should understand the fund's glide path, underlying investments, fees and expenses, investment performance and whether the strategy remains appropriate for the plan's participant population.
As TDFs become more sophisticated, that evaluation may become more complex. New features should not automatically be considered better simply because they offer greater personalization or additional investment capabilities. Sponsors will need to determine whether the benefits justify additional costs and complexity and whether participants understand how the solution works.
For plan sponsors, keeping pace with the rapidly evolving TDF marketplace can be challenging. A knowledgeable retirement plan advisor can help committees evaluate their existing target date series, compare it with alternatives and determine whether newer features are appropriate for the plan's workforce. That evaluation may include reviewing glide paths, fees, investment performance, personalization capabilities, managed account alternatives, private-market exposure and retirement income features.
An advisor can also help committees conduct appropriate due diligence, benchmark available options and document the process used to reach their decisions.
Informational Resources: 401kSpecialist: Target Date Funds: A 401(k) Specialist Deep Dive” (June 10, 2026); Morningstar: “Target-Date Strategies: 3 Key Trends for Better Performance in 2026” (March 27, 2026); Morningstar: “Analyzing The Value of Managed Accounts” (January 13, 2026); PIMCO: “2026 U.S. Defined Contribution Consulting Study” (accessed August 18, 2026).
Kmotion, Inc., 12336 SE Scherrer Street, Happy Valley, OR 97086; 877-306-5055; www.kmotion.com
©2026 Kmotion, Inc. This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this publication are for general information only and are not intended to provide tax or legal advice or recommendations for any particular situation or type of retirement plan. Nothing in this publication should be construed as legal or tax guidance, nor as the sole authority on any regulation, law, or ruling as it applies to a specific plan or situation. Plan sponsors should always consult the plan’s legal counsel or tax advisor for advice regarding plan-specific issues.
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