Definition
A glide path is the pre-specified schedule by which a target date fund's or lifecycle fund's asset allocation shifts from higher-risk to lower-risk allocations over time as the fund approaches its target date.
Why it matters
The glide path is the operating mechanism of a target date fund — the fund's investment behavior is a function of where it is on its glide path at any given moment. Because target date funds are the dominant qualified default investment alternative in defined contribution plans and are held by a large share of participants, the specific glide paths in the plan's default fund line are what actually govern the risk trajectory of most participant balances across accumulation.
How it works
A glide path is expressed as a schedule showing what percentage of the fund is allocated to each broad asset class at each point in the fund's timeline — typically decomposed into equity, fixed income, and sometimes cash or alternative asset categories, and often plotted as a curve showing the descending equity share as years to target date decrease. Glide paths differ across fund families in two structurally important respects. First, the terminal allocation at the target date: a "to" glide path reaches a static, typically conservative allocation at the target date and holds it thereafter; a "through" glide path continues to reduce equity allocations for years or decades past the target date, on the theory that the participant continues to hold the fund into retirement. Second, the shape and pace of the descent: some glide paths reduce equity relatively smoothly over the whole accumulation period; others hold higher equity longer and step down more rapidly near the target date. As a concrete example, a representative "through" glide path might hold 90 percent equity at 40 years from target, 60 percent equity at 10 years from target, 40 percent equity at the target date itself, and step down to 30 percent equity 10 years past the target date; a "to" glide path in the same family might reach 40 percent equity at the target date and hold that allocation.
In practice
For an individual holding a target date fund, the glide path is the answer to the question of what the fund actually does across the participant's working life. A participant can identify the fund's glide path in the fund's prospectus, in participant disclosure materials, or on the fund family's website; the glide path is typically shown as a chart with age or years to target date on one axis and asset class allocation on the other. A professional advising a participant can evaluate the specific glide path against the participant's total-portfolio circumstances, other retirement income sources, and expected retirement age. Plan fiduciaries selecting a target date fund line are expected to evaluate the glide path as part of the selection and to document why the specific glide path is appropriate for the plan's participant population — the Department of Labor's tips on target date fund selection specifically identify glide path evaluation as a fiduciary responsibility.
Related terms
- Target date fund
- Lifecycle fund
- Qualified default investment alternative
- Default investment
- Asset allocation
- Accumulation phase
- Decumulation phase
- Rebalancing