Panelists at the recently held PLANSPONSOR National Conference in Chicago said that according to the Department of Labor, sponsors still have to do their due diligence in the selection and monitoring of QDIAs. Sponsors need to understand what they’re buying, how it works, and how much it costs.
Bradford Campbell, of Counsel, Schiff Hardin LLP, said documentation of the reasons for selection is more important than what the fund does (how it performs).
Secondly, the panelists pointed out that QDIAs are not just target-date funds. There are a wide variety of options within the three basic categories of QDIAs that give sponsors a lot of flexibility. Philip J. Callahan, Managing Director, National Sales Manager, Retirement Services Group, Goldman Sachs, said the QDIA choice is often directed by the retirement plan provider, and the sponsor may not be aware of other options – balanced funds and managed accounts. According to Callahan, target-date funds may not meet all the needs of the plan or participants.
The panelists also noted that QDIAs are not just for automatic enrollment – they can be used in a variety of other situations, such as when changing service providers or investment options. Campbell added that they can be used as part of a mapping strategy when making such changes.
QDIAs are part of a sponsor’s overall benefits plan, and sponsors need to make sure it fits plan and participant needs. Callahan said a sponsor should consider participant demographics and investing sophistication before choosing a QDIA.Campbell added that sponsors should document all decisions, demonstrating that they thought about all questions and came to a decision for a reason.
Finally, the panelists pointed out that the QDIA marketplace is rapidly changing and the options selected in 2008 may be “old news.” Campbell again pointed out that it’s a sponsor’s fiduciary responsibility to prudently monitor the QDIA. “It’s been three years, they need to look at their choices,” he said.
Callahan noted that in those three years there have been changes in fees, changes in underlying investments and glidepaths for target-date funds, new asset classes being used, and more interest in custom target-date funds versus proprietary.Audio of the panel discussion will soon be available at http://www.plansponsor.com/Multimedia.aspx.