Empower Solution Shifts Participants from TDF to Managed Account

Defined contribution retirement plan industry professionals certainly have heard the “TDF versus managed account” debate; increasingly, providers are seeking a middle ground. 

Empower Retirement announced the launch of a new qualified default investment alternative (QDIA) for retirement plans that is “designed to help plan participants whose retirement planning needs change over time.”

According to Empower, the Dynamic Retirement Manager solution takes into account the driving roles of participant inertia and engagement—which can change significantly over time. Given this fact, the solution allows plan sponsors to direct their employees’ retirement deferrals first into target-date funds (TDFs) during the early portion of their working years. Later on, when a pre-determined set of criteria are triggered, the participant’s assets will automatically shift into a managed account.

Empower says the later-career transition to a managed account affords participants who have had success in the plan an opportunity to receive advice on a personalized retirement income strategy once they are ready for it. Of course, given the challenge in general of getting young people focused on retirement savings, it stands to reason the solution will be most effective when paired with such progressive plan design features as auto-enrollment and auto-deferral escalations.

“In an ideal world everyone in their first job would make all the correct and necessary decisions about investing for the future and would continue to do so throughout their careers,” observes Edmund Murphy III, president of Empower Retirement. “The reality is that retirement isn’t top-of-mind for many workers until later in life and by then their needs and goals are more acute and likely in need of customization.”

Thus it makes sense to blend TDFs and managed accounts within a QDIA solution, he says.

NEXT: Industry comments on the release 

As the firm explains, triggering criteria for the shift to managed accounts within Dynamic Retirement Manager are designated by the plan sponsor. Criteria can include such factors as age, years of service, or years to retirement. Dynamic Retirement Manager’s participant interface is “centered on a multi-stage, multi-touch engagement model designed to capture a participant’s interest in their retirement plan at a point when they are ideally more receptive to saving for retirement …  In the event that a participant remains unengaged even after the shift to a managed account, the Empower recordkeeping system contains sufficient personalized data to make automatic investments on their behalf, unless the worker chooses to opt out.”

In rolling out its new product, Empower is highlighting various industry voices who have called for more progressive thinking about the role of the QDIA. David Blanchett, head of retirement research at Morningstar Investment Management, comments that “the time is right for the industry to develop innovative QDIA approaches that can address the modern realities of retirement investing. Leading providers have the tools, the data and the accumulated knowledge to deploy a significantly better experience.”

Lew Minsky, president and CEO of the Defined Contribution Institutional Investment Association, agrees: “There’s no question that there is a great demand to help participants who need advice tailored to their specific goals. The challenge for plan sponsors and advisers is how and when to engage at the right time and right place … Ten years of experience tells us that a fresh approach to this problem should be widely considered.”

For more information, visit www.Empower-retirement.com