The report notes that nearly three-quarters of retirement plans with QDIAs
choose TDFs for that purpose.
The Department's overarching focus when developing the QDIA
regulation, including the types of investment alternatives that could be QDIAs
, was on the long-term accumulation of retirement savings as a way to ensure adequate retirement income," according to the letter.
By far, the most popular QDIAs
are life cycle funds, known as target date funds.
Introduced in 2006 with the Pension Protection Act (PPA), QDIAs
provide automatic portfolio rebalancing as the investor ages.
The Department of Labor (DoL) then followed the PPA's lead by, among other things, clarifying the "safe harbors" that plan sponsors would enjoy in the choice of default investment vehicles, the so-called QDIAs
(Qualified Default Investment Alternatives).
These prescribed QDIAs
relieve fiduciaries of liability as long as certain requirements are met.
Target-date fund usage has increased through a number of avenues: participants actively choosing the funds; the funds' designation as one of three eligible 'qualified default investment alternatives,' or QDIAs
, under the Pension Protection Act of 2006; and the growth of automatic enrolment plans, which frequently designate target-date funds as the default investment for participants as they are put in the plan.
404c-5 (2) implementing the PPA 2006 provisions providing relief to plan fiduciaries who invest the assets of participants who do not provide investment direction in participant-directed plans (such as automatically enrolled workers) in "qualified default investment alternatives" or QDIAs
The list of QDIAs
includes balanced funds and managed accounts as well as target-date funds, but target-date funds have become by far the most popular employee default, experts say.
While our industry is quick to agree on the positive effect the QDIA
provisions will have on both plan sponsors and participants, the question of which of the 3 QDIAs
will be most widely used--managed accounts, target date funds, or balanced funds--is still open for debate.
DALBAR evaluations are intended to facilitate the duties of the responsible fiduciary and do not replace the requirements to prudently select and monitor plan investments, including QDIAs
The most popular QDIAs
currently are target date funds, balanced accounts and managed accounts, which have all replaced the old stable value stalwarts, as a result of regulations.