The act provided also guidance on how plan sponsors could make investment decisions for plan participants who haven’t selected any options themselves. That guidance provided safe harbor status for certain qualified default investment alternatives (QDIA):
- Age-based products or models (i.e., target date funds)
- Risk-based products or models (i.e. balances or target risk funds)
- Managed accounts
Target Date Funds - Not Always the Best Option
Many employer-sponsored retirement plans use target date funds as their plan’s QDIA because they are easy to implement. Fisher Investments’ Institutional Group believes this may lead to suboptimal outcomes because target date funds aren’t as simple as some make them out to be.
The fund-of-funds structure that most target date funds employ and various approaches to asset allocation, glide path methodologies and risk management, create complexities for fiduciaries monitoring their retirement plan. The burden of selection and ongoing monitoring of these products falls on the shoulders of plan investment committees.
Additionally, many plan sponsors are not aware of their ability to delegate this fiduciary responsibility to a qualified ERISA 3(38) investment manager.
A Better QDIA Alternative to Target Date Funds
The Personalized Retirement Outcomes (PRO) QDIA® Solution is a new option for retirement plans. This solution is designed as a better alternative to target date funds. Participants can now be defaulted into an asset allocation that is tailored to their personal situations. The PRO QDIA® Solution is based on more data points than solely their age.Learn More About The Trouble with Target Date Funds