When Verizon Communications Inc. announced the freezing of its $42 billion defined benefits (DB) retirement plan for active management employees in December 2005, the company used the historic juncture to make changes to its 401(k) plan, as well. Like most major employers focusing on their defined contribution plans after downsizing or eliminating a DB plan, Verizon moved first to increase its corporate contribution to the plan–to a 100% match of the first 6% and a new discretionary match of another 3%, based on company performance, from 100% of the first 4% and 50% of the next 2%.

But was that enough? Verizon Investment Management Corp. (VIMCO), overseer of the company's DB and 401(k) plans, also wanted to address problems the company's employees were having when it came to designing a portfolio mix suitably customized to each worker's age and risk appetite. Although Verizon offered four lifestyle funds, Verizon discovered that some employees were making bad choices: For instance, young employees were picking conservative lifestyle funds that were more appropriate to workers on the verge of retirement, than one at the start of a career. "In lifestyle funds, people have to identify their own risk tolerance, which is often a difficult thing for many employees to do," says David Wray, president of the Profit Sharing /401(k) Council of America, a national, nonprofit association of companies with profit-sharing and 401(k) plans. "Target date funds remove that obstacle."

VIMCO decided to assemble its own group of target date funds, using asset managers of its own choosing. Based on the target retirement date of the participant, these funds would automatically rebalance the asset mix from aggressive, when participants are young, to conservative as they near retirement. "We wanted the 401(k) savings plan to be goal-oriented," says Michael Riak, VIMCO's director of savings and affiliated plans. "Target date funds put that out in front of people and show them goals they can aim for."

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