Who’s at Default Here? QDIAs Needed in More DC Plans

Who’s at Default Here? QDIAs Needed in More DC Plans

Who’s at Default Here? QDIAs Needed in More DC Plans by Richard Davies, AllianceBernstein

A surprising number of plan sponsors lack a default investment—or choose a default investment for their plan that isn’t a qualified default investment alternative (QDIA). Is confusion part of the problem?

The Have-Nots

The trend toward greater adoption of target-date funds and other QDIAs continues, but some plan sponsors still haven’t embraced the changes ushered in by the Pension Protection Act of 2006 (PPA) and subsequent clarifying regulations. According to our survey of over 1,000 plan sponsors (a balanced representation from across the full universe of DC plan sizes), one-fifth of plan sponsors lack a default investment altogether—more so among the smallest plans (37%) than the largest (13%). Along with that, our survey indicates that another 30% of plans still use a stable value or money market fund as their default investment (Display).

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Our results differ from other industry surveys that focus primarily on larger plans or are based on a single recordkeeper’s data. And while it’s surprising that roughly half our survey population doesn’t take advantage of QDIA safe harbor protections, the large size and balanced demographic representation of our study make this finding hard to dismiss. Many sponsors appear to be confused or misinformed even though respondents were screened to be sure they are fiduciaries. And this information gap seems to parallel our finding that over one-third of plan sponsors don’t actually know that they are fiduciaries.

Philosophical Divide in Plan Approach

The lack of a default shows some correlation to the philosophical divide between the “paternal” and “hands-off” plan perspectives. Plan spo