Target-date funds run on autopilot. Pick the fund with your retirement year on it, and a glide path — the automatic shift from stocks to bonds as the date nears — handles the rest. In 2022, the autopilot sent the bill.
Default by law
The product launched in 1994 as a fix for a real problem: most 401(k) savers never rebalance anything. One decision, forty years of autopilot.
The growth came from Washington, not investors. The Pension Protection Act of 2006 created the Qualified Default Investment Alternative — legal cover for employers who auto-enroll workers into a default fund. Target-date funds became that default almost everywhere.
Assets went from roughly $100 billion to trillions. Most participants never picked these funds. They were placed in them.
The 2022 bill
In 2020 the Federal Reserve cut rates to zero, and the 10-year Treasury yield bottomed near 0.5% — the lowest in the history of the republic. Low yields mean record-high bond prices: the most ever paid for the least income ever.
A human advisor would ask whether locking in half a percent for a decade is “safe.” A glide path asks nothing. Every paycheck, every quarter, every birthday, it bought more bonds, because the calendar said so.
Then 2022 delivered the fastest rate-hiking cycle in four decades, and bond math is blunt. Price change roughly equals minus duration times the rate change — duration being a bond’s sensitivity to rates. By late 2022 the 10-year yield was near 3.9%, and the damage to old bonds was done.
The U.S. investment-grade bond index fell about 13%, its worst year on record. Long-dated Treasuries lost roughly a third — a stock-market-sized crash in the asset that was supposed to be the seatbelt.
Look at the near-retiree case. A typical 2025-dated fund — built for someone three years from retirement — lost about 15%. The S&P 500 lost 18%. The seatbelt crashed almost as hard as the car.
Your pension is the bond
To be fair, a target-date fund never promised to beat the market. It deliberately trades upside for smoothness. But three structural problems widened the gap beyond the brochure.
The bond drag: through one of the strongest stock runs in history, the glide path kept growing a slice priced to return almost nothing — and it delivered on that pricing.
Valuation blindness: the rebalancing is mechanical. It bought bonds at 0.5% yields with the same confidence it would buy them at 5%. Any process that ignores price eventually pays the wrong one.
The fee stack: an active target-date series runs roughly 0.60–0.78% all-in, versus about 0.08–0.12% for the same glide path in index funds. Paying five to ten times more for the wrapper compounds into six figures over a career.
For CalSTRS and CalPERS families there is a fourth problem, and it changes decisions. Your pension already is the bond sleeve. A teacher with a formula-guaranteed lifetime check who also holds a 2030 fund is paying fees to duplicate safety the state already guarantees.
Risk capacity — how much loss the plan can absorb — should set the allocation, not your birth year. A guaranteed check is capacity.
None of this means sell everything and buy stocks. It means the default deserves an audit: which share class, what all-in fee, and what the glide path assumes about you that is not true. That is twenty minutes with your statement on the table.