Reconsidering TDFs as the QDIA

Sponsored by: MFS Investment Management

Target date funds (TDFs) have become commonplace in retirement plan lineups (used by nearly 90 percent of plans) and is now the most commonly used QDIA (default investment option). Target date funds rose quickly in popularity for their ease of use by participants and the notion that they are a diversified option in which the allocation automatically changes as one ages and that a participant can “set it and forget it.” TDFs have received some criticism in recent years for the one-size-fits-all approach that makes them easy to use but makes them less customized to individual situations. There have also been some lawsuits in recent years targeting TDF fees. Some articles recently have wondered if TDFs are still the best option for the QDIA or if perhaps a hybrid or more customized fund would be a better default, such as a managed account. We asked members this week if they are considering moving away from TDFs as the default option in favor of something else.

Three percent of plans use something other than a TDF, and three percent are currently considering options – leaving 94 percent happy with a target date fund as their current QDIA. Comments on TDFs as the QDIA follow.

• [Have a stable value as the QDIA] Would recommend we use an age based TDF
• Every employee works with our 3rd party agent to pick the funds to invest in.
• At our company, the Target Date Funds have become the largest investment allocation for our employees. They appreciate the low-maintenance aspect of the funds as well as the solid financial performance to date.
• I know there's lots of buzz around returns and fees around these but I'm not sure what would be a better alternative.
• I really liked our old QDIA that was a basic age adjusted portfolio built out of our fund options, largely low cost index funds. You could further select a conservative, standard, or aggressive track.  Now we use a higher cost branded TDF family as the QDIA.
• Most of our employees do not understand investing. TDF are the perfect "set it and forget it" option, and it doesn't create stress during enrollment.
• Our employees seem to be pretty happy with this as a set it and forget it way to manage their plan investments.  It is used in our plan significantly more than any other option.  As such I don't see why we would want to alter this.
• Our QDIA is the Target Date Funds, we feel this is the best asset allocation model for lay ptpts.
• Switching our TDF in QDIA to a CIT TDF with same firm
• Target dates are highly preferred by employees
• The target dated funds work really well for our population, so we will keep using them!
• The TDF chosen is a perennial strong performer.  Given the lack of investment knowledge with the manufacturing industry workers, there will not be a move away from TDF as the QDIA.
• We find these helpful for auto enrollment
• We haven't considered it at this time.
• We have found more success with Risk based models