Critiques of 2 Recent GAO Reports

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The Government Accountability Office (GAO) recently released the following 2 reports:

The report on target date fund risk merely rubber-stamps current industry practices that are far too risky for those near retirement, so it’s a big disappointment. But the exposure of conflicts of interest in the most recent report is applaudable. Here are quick overviews.

Target date fund risk

GAO contrasts the risk of the Federal Thrift Savings Plan (TSP) to that of the TDF industry, as shown in the following two graphs. TDFs say they follow academic lifetime investment theory, but most do not follow the theory, as explained in this article. The theory is 80% risk-free at the target date, but the industry is 90% risky throughout (at all ages) in risky equities and long-term bonds.

The TSP does follow the theory. It is very safe at the target date with 70% in the risk-free G fund guaranteed against loss by the U.S. government. However, the industry does not.

graphs