It's most often target-date funds (TDFs) that are at the core of an asset-allocation re-enrollment, as these fund series are most often a plan's
qualified default investment alternative (QDIA).
The move comes as a surprise, as just five years ago low fees were voted the least important consideration for plan sponsors when selecting a
qualified default investment alternative (QDIA).
The DOL notes that for an investment to serve as a
qualified default investment alternative (QDIA), any participant or beneficiary on whose behalf assets are invested must be able to transfer those "in whole or in part" to any other investment alternative available under the plan as frequently as participants and beneficiaries may elect to invest in the QDIA, and no less frequently than once within any three-month period.
Certainly, the passing of the Pension Protection Act (PPA) in 2006 was a momentous landmark for the industry, as it led to automatic features and the use of target-date funds (TDFs) as the
qualified default investment alternative (QDIA)-sidestepping participants' inertia and ensuring that their portfolios are properly diversified and rebalanced over time.
The Department of Labor (DOL)'s implementing regulation-known as the "
qualified default investment alternative," or "QDIA," regulation-made it clear that the department favored TDFs and similar investment vehicles over investments that protect principal.
The choice for
qualified default investment alternative (QDIA) presents a good example of this phenomenon.
According to Cerulli, managed accounts have some hurdles to overcome to effectively replace target-date funds (TDFs) as the go-to choice for Employee Retirement Income Security Act (ERISA) retirement plans'
qualified default investment alternative (QDIA) designation.