"Plan sponsors face a number of challenges in selecting and monitoring TDFs, and some may not take a thorough approach to TDF selection," the GAO writes in ": Key Information on Target Date Funds as Default Investments Should be Provided to Plan Sponsors and Participants." At the same time, the level of understanding of TDFs among participants was fairly low, the report notes.

Target-date, AKA life-cycle funds, take into account the plan participant's age and retirement date, and invest in a mix of investments that becomes more conservative as the participant approaches retirement. In 2008, nearly one-third of all 401(k) plan participants used target-date funds, up from 25% in 2007, according to . The percentage of Vanguard Group retirement plans with a TDF as a default investment option nearly doubled between 2005 and 2009, rising from 42% to more than 80%, the GAO report states.

The funds, however, have generated a fair amount of controversy. Some TDFs created for individuals retiring in 2010 suffered significant losses when the economy cratered in 2008, the GAO report notes. A 2010 study, "," by Vallapuzha V. Sandhya, a doctoral student at Georgia State University, found that target date funds underperform balanced funds. Sandhya attributes this to the "fund of fund" structure in place within many TDFs. That is, the funds invest within their fund family, leading to higher fees and lower performance.

In addition, significant variations exist between funds. For instance, the rate at which a fund shifts moves to more conservative investments -- what's referred to as the glide path -- can vary from one fund to another.

To help ensure that plan participants can trust the TDFs in which they may be investing, plan sponsors should take several steps, the GAO report says.