Target-date funds ignore 2.4-year longevity gap, Eigner argues

Target-date funds sort participants into vintages by year of birth alone, leaving a 2.4-year gap in life expectancy at 65 with no weight in the default, Jake Eigner argues in a commentary for 401(k) Specialist.

The design dates to the Pension Protection Act, passed in August 2006, and Labor Department qualified default investment alternative rules finalized in October 2007. Eigner writes that the only input used to assign a horizon is year of birth—not gender, account balance, salary, outside assets or spousal earnings.

A sponsor that picks a target-date series is also picking the boundary that decides which vintage a defaulted participant lands in. The practical question is which inputs build the vintage map and where the edges sit.

The CDC's 2024 figures put a 65-year-old woman's expected remaining life at 20.8 years, against 18.4 for a man. Eigner uses that 2.4-year gap to show a man born in December 1981 and a woman born in January 1982 may sit in the same 2045 vintage on the same glide path. A man born in December 1982 and another born in January 1983, whose expected horizons differ by weeks, could land in the 2045 and 2050 funds. "The default fund lineup treats a one-month difference in statistical life expectancy as significant and a multi-year difference as invisible," Eigner writes.

That arithmetic, Eigner argues, is the design still running the 2006 playbook: a birth-year map is exact on the input it uses and leaves a 2.4-year difference in expected longevity between men and women out of the calculation.