Plan Sponsors Not Making Best Use of TDFs


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.”




According to the survey, the size of plan assets directly impacts sponsors’ goals for TDFs. More than half (54%) of sponsors of large plans and 43% of sponsors of midsize plans said the goal of their TDF is to ensure that savings last through participants’ retirement years—versus only 32% of sponsors of small plans (those with less than $1 million in assets). Less than half (41%) of small-plan sponsors said the goal of their TDF is to ensure a minimum acceptable level of savings at retirement.

More than one-third (37%) of midsize-plan sponsors were concerned about improving participation, while only 28% of sponsors of small- or $500 million-plus large plans were concerned. Small plans have the lowest participation rates (30% or less) while large plans have the highest participation rates (86% or higher).

AllianceBernstein’s plan sponsor survey was conducted online in November 2011 and included 1,018 respondents nationwide, representing small plans (with assets of less than $1 million), midsize plans ($1 million to $249 million) and large plans ($250 million or more).

The full report of the findings is here.