October 16, 2012
--- While more
than half of plan sponsors offer target-date funds (TDFs) in defined
contribution (DC) plans, only half of them use TDFs as the default. ---
The 3rd biannual survey of plan sponsors by
AllianceBernstein found many plan sponsors offering TDFs are underutilizing
qualified default investment alternatives (QDIAs), which provide safe harbor
protection for sponsors and often offer better asset allocation for
participants than they might have if they constructed their allocation on their
own. Of the 50% of sponsors offering a TDF but not using it as the default, 83%
have no default or are still using a stable value fund, an equity fund or a
bond fund—none of which are QDIAs—as the default.
The survey also found the majority of midsize and large-plan
sponsors are failing to leverage their assets to provide more specialized or
customized TDFs.
- 22%
of large-plan sponsors ($250 million or more in assets) and 21% of midsize
plan sponsors ($1 million to $249 million in assets) reported that they
have adopted customized TDFs; and
- 36%
of large-plan sponsors said they have not adopted customized TDFs because
they were unaware of the benefits of improved structure.
“Even in the wake of a continuing decline of Social Security
and defined benefit plans as primary sources for retirement income, our recent
research shows that many plan sponsors are still struggling to find the best
way to structure their DC plans,” said Joe Healy, head of AllianceBernstein’s
Defined Contribution Client Experience. “While more and more sponsors recognize
the benefits of offering an age-based, asset-allocation investment solution to
their participants, they fail to realize valuable fiduciary protections by not
designating these funds as their plan’s default.”