Manning & Napier has developed QDIA Sync, a new, free tool to help advisers consider a retirement plan’s demographics when selecting a target-date fund (TDF) for the plan. The tool asks advisers to answer questions in five categories—risk, participants’ savings levels, other potential retirement income, participant behavior in terms of when they are most likely to exit the TDF, and the average age of participants.
For example, the first question under risk is, “When selecting a qualified default investment alternative (QDIA), is it more important to consider individual participant age or overall plan demographics?” Moving next to savings levels and risk tolerance, on average, are participants balanced, preservation-oriented or growth-oriented? What is the initial default deferral rate for the plan, and, if there is automatic escalation, how much is it every year? How much is the company match?
In terms of other potential retirement income, QDIA Sync then looks at whether participants have a defined benefit (DB) plan as well, and whether the adviser believes participants will have accumulated a significant amount of retirement assets outside the employer-sponsored plan.
As for participant behavior, the tool asks whether the company has a high turnover rate, and if retiring participants take a lump-sum distribution or remain invested in the plan. Finally, QDIA Sync asks at what age the average participant retires, and what percentage of the employees is in each different age brackets. The tool then recommends a conservative, balanced or aggressive suite of target-date funds for the plan.
In conjunction with Strategic Insight, an Asset International company, Manning & Napier also issued a report, “Raising the Bar on Target Date Due Diligence: Demographics Matter.” The report says that the ways to evaluate multi-asset-class products such as target-date funds are changing. “Most notable of late is the integration of plan characteristics, or plan demographics, into target-date analysis,” the report says. “Demographic factors such as age, planned retirement dates, salary levels, turnover rates, contribution rates and withdrawal patterns can assist fiduciaries in their investment menu selection.