Will lawsuits emerge?
Because target-date funds are sanctioned by the Department of Labor, employers don't have to worry too much that they'll be liable for market losses, at least theoretically.

However, some employers do have furrowed brows. Adams says that as part of its annual Defined Contribution Survey, employers were asked, "How concerned are you about litigation resulting from auto-enrolling participants into target-date funds where the underlying funds do not meet the IPS standards?"

IPS stands for investment policy statement, and this has been likened to an architectural blueprint for retirement plans.

Says Adams: "Over one in five (plan sponsors) were 'very concerned,' 43 percent were 'somewhat concerned.' Only about a third were 'not at all concerned.'"

It turns out that a lot of plans don't even have an investment policy statement in place, according to plansponsor's Defined Contribution Survey.

Planadviser magazine reports that some 30 percent of plans that don't use an adviser don't have an investment policy statement. Among those plans that do use an adviser, 26 percent don't have an IPS. An IPS provides guidelines to employers about when to drop investments that don't meet certain criteria. Without guidelines, it's difficult to properly monitor investments. Yet it's the fiduciary duty of plan sponsors to put in place a process to select and monitor appropriate investments for plan participants.

Plans are not required by law to adopt an IPS, but without one they are more vulnerable to lawsuits.

Design your own IPS
One reason target-date funds are all over the place as far as performance and investment strategies go: There's no ideal portfolio design that everyone follows. Some target funds do get more conservative as the target date approaches, while others stay quite aggressive. But it's likely that the horrendous performance of some funds may get the attention of the Department of Labor.

Meanwhile, says Morningstar's Carlson, "I do think that there's a real lesson to be had here for investors to really approach those most aggressive funds with caution."

What can investors do to protect themselves?

"In general, they have to peek under the hood to see what the asset allocation is and consider whether that fits in with their goals and risk tolerance," says Carlson. "Look at the equity exposure, look at the funds as well. Look at the costs."

If you're not happy with the asset allocation of a target-date fund, review the other investment options in your plan. Divert a portion of your contribution to other funds so that you achieve the ideal asset allocation that meets your criteria.

But don't stop investing altogether, and don't move everything over to ultra-conservative investments unless you're unable to sleep at nights. History tells us that it's only a matter of time before the markets will rebound, and you don't want to miss out on that ride of positive volatility when it finally happens.