Investing

A Decade After PPA and the QDIA Debate Continues

The transition period, from five years before retirement to five years after, is the most critical phase of lifecycle investing—and potentially the most difficult to manage with a standard TDF glide path. 

By John Manganaro editors@strategic-i.com | August 29, 2017
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Ron Surz, president and CEO of Target Date Solutions, is among the retirement industry professionals who commonly offers his own independent analysis in response to PLANADVISER articles and big news from other trade publications. 

Regular readers may know Surz as something of an outspoken and unabashed critic of a lot of the thinking behind proprietary and bundled target-date funds. His website suggests that target-date funds (TDFs) are “a reasonably good idea” but with poor execution, “at least so far.” So it was no surprise to see him offer commentary in response to our recent articles speaking to the virtues (and some of the drawbacks) of bundled approaches to recordkeeping and target-date fund investing.

Recently Surz has been focused on the theme of “combining TDFs with managed accounts to create personalized target-date accounts, or PTDAs.” Leveraging the open-architecture approach, he says PTDAs are customized to each participant’s circumstances and goals while also striving to get around the natural limitations of one-size-fits-all glide paths associated with big proprietary TDF products.

“Managed account providers can help participants identify appropriate risks and offer input on customizing risk exposures along the best TDF glide path,” Surz explains. “Recordkeepers have their role to play in managing the allocations to personalized age-and-risk appropriate models.”

Speaking frankly, Surz says the best managed account is delivered in tandem with face-to-face individual consulting, “but this is expensive, so true one-on-one managed accounts are generally limited to the executives of companies.” However, increasingly there are effective managed accounts available for the rank and file through so-called “robo-advisers,” which provide computerized automated guidance.

“The Department of Labor recommends the incorporation of workforce demographics into TDF design,” Surz adds. “This can only be accomplished with individualized choices. Some participants will have savings outside the DC pension plan, so they don’t need to generate high returns, arguing for conservatism. Others might not have saved enough, so they require higher investment returns associated with aggressiveness.”

NEXT: Related arguments from the biggest fund providers