THE TAKEAWAY
Craig Duglin
Product Management Manager Senior
The growth of target date funds (TDFs) has simplified retirement investing for many defined contribution (DC) participants. Most of TDF assets are in “off-the-shelf” funds that offer the same investment strategy (or glide path) for all plans. But some plan sponsors have found that their unique goals for the retirement plan might merit a more personalized approach to their default investment (called a Qualified Default Investment Alternative or QDIA). Recordkeepers and asset managers are responding to this demand with a mix of solutions, ranging from more tailored target date funds to more personalized QDIAs.
Be ready for personalization
It could gain momentum for several reasons. Technology is making managed accounts and other personalized options more affordable and widespread. Going forward, more participants may be able to enter a few data points about themselves and get a customized asset allocation recommendation.
Remember that plan investment selection is a fiduciary act
Plan sponsors should apply the same due diligence to a tailored target date fund or personalized solutions as they would to any potential plan investment. They should conduct a detailed review of each provider, focusing on their cost and effectiveness. In the case of a QDIA managed account, a plan sponsor should fully consider the investment process, including the portfolio construction methodology.