The passage of the Pension Protection Act (PPA 2006) paved the way for automatic enrollment which allowed companies to enroll their employees into their plan via negative consent. It also provided guidance about how trustees are to go about making investment elections for those that failed to provide instructions. That guidance provided safe harbor status for certain Qualified Default Investment Alternatives (QDIA).
The overwhelming majority of plans use TDF’s as their ease of implementation provides an advantage which has created a surge in assets. But as you can see from the chart, there are almost 60 different options to choose from with varying approaches to asset allocation.
The simplicity of TDF’s is deceptive, the fund of funds structure that most employ along with various approaches to asset allocation, glide path methodology and risk management create fiduciary implications. The burden of selection and ongoing monitoring of these products falls on the shoulders of plan committees.
Many plan sponsors are not aware of their ability to delegate this fiduciary responsibility to a qualified ERISA 3(38) investment manager.
The Personalized Retirement Outcomes Solution is a new QDIA 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 better tailored to their personal situations based on more data points than solely their age.