By Fergus Meldrum, Vice President, Investment Strategies, NFP
Target date funds (TDFs) have reshaped the group retirement market across Canada by filling an important investment need for many plan members. TDFs have quickly become the most popular default investment choice for a large percentage of plan members, and with that prominence comes a new level of responsibility for plan sponsors.
For many Canadian employers, the decision to select their TDF suite was made years ago, often based on low fees or brand familiarity. These early choices were good choices at the time, but the TDF market has evolved and many of these funds have seen changes to their glidepaths and underlying investments.
The release of updated CAP guidelines from the Canadian Association of Pension Supervisory Authorities (CAPSA) in 2024 have pushed target date fund oversight into sharper focus. Section two of the guideline makes it clear: plan sponsors are accountable for ensuring default investments align with the purpose of the plan and the needs of plan members. The updates to the CAP guidelines are a great opportunity for plan sponsors to revisit their choice.
A Shifting Market Demands a Strategic Response
In today’s landscape, a “set-it-and-forget-it” approach is no longer sufficient. Many Canadian TDFs have significantly adjusted their underlying investments in recent years, adding exposure to U.S. and international markets, introducing alternative assets and adapting fixed income strategies. These changes may impact risk levels, return expectations and, ultimately, member outcomes.
At the same time, several new providers have entered the Canadian market, giving plan sponsors access to a broader array of strategies — passive, active, hybrid or custom. The sheer variety of options makes it essential to assess not just performance, but also philosophy, glidepath design and suitability to the plan’s demographics.
What to Consider in Today’s Environment
Choosing a target date fund today requires a structured, informed process that incorporates CAPSA’s recommendations and draws from global best practices. This includes:
- Understanding the fund’s investment philosophy (active vs. passive).
- Evaluating glide path design and its alignment with employee risk tolerance.
- Assessing fees in the context of value, not just cost.
- Reviewing demographics, contribution patterns and employee behaviours.
- Considering custom or non-proprietary fund options.
- Documenting your decision-making process.
Partnering for Better Outcomes
At NFP, we help employers take a fresh look at their retirement plan investment lineup, including a deep dive into the TDF selection process. By aligning your default strategy with the purpose of your plan and the evolving needs of your workforce, you can create a foundation for stronger outcomes.
With the majority of workplace contributions now funneling into TDFs, it's time to create an oversight process that is part of your core fiduciary responsibility. For Canadian plan sponsors, the message is clear: the target has moved. Is your plan keeping pace?
Let’s Start a Conversation.
Fergus Meldrum
Vice President of Investment Strategies
Fergus.Meldrum@nfp.com
416.371.9903