Lifecycle Funds: the QDIA of Choice?

Nearly eight in 10 (78%) employers surveyed by Fidelity Investments already offer a QDIA, with most (63%) holding lifecycle funds as the QDIA.

In addition, 14% of employers indicated they plan on switching to one of the qualified default investment alternative ( QDIAs) sanctioned in Department of Labor (DoL) regulation, and of those, 87% said they will use a lifecycle fund, according to a Fidelity press release. The QDIA regulation provides a fiduciary liability safe harbor for employers that choose lifecycle funds, a balanced fund, or managed accounts as the investment to which participant dollars are defaulted in the absence of an investment election.

The DoL’s regulation was the biggest factor in driving employers to change default options (53%), followed by their concern for their employees’ ability to be retirement ready (27%), the survey found.

Among Fidelity’s recordkeeping clients, half of defined contribution plans currently have a lifecycle option as a default—representing nearly 70% of Fidelity’s participant base—compared to just 8% in 2005. More than 4.8 million Fidelity participants now have some portion of their workplace retirement assets invested in a lifecycle option, up from 2.3 million participants in 2005.

The use of stable value and money market accounts as a default has decreased to less than half (49%) of DC plans—26% of Fidelity’s participant base—from 88% of DC plans holding them in 2005.

Scott B. David, president of Retirement Services at Fidelity Investments said in the release that lifecycle funds are becoming the default investment of choice not only because of the DoL’s fiduciary protection, but also because it relieves the challenge for employees of choosing the right asset mix.