Calling the situation fluid, adviser Jim O’ Shaughnessy, Managing Partner, Sheridan Road Financial, a Member Firm of NRP said he predicts a lot of wait and see and is advising many of his clients to wait to make their default choices until the DoL releases its final approved list: “I’d be hesitant as a plan sponsor to have something that was not listed as a QDIA by the DoL because that brings up all kinds of issues,” said O’Shaughnessy, speaking at PLANSPONSOR’s Plan Designs conference in Chicago.
Most panel members agreed that many plans won’t be making any moves until the DoL releases the final regulations, to see whether stable value gets listed alongside the original default suggestions of lifecycle funds, balanced funds, and managed accounts.
Susan Walton, Senior Consultant at Watson Wyatt Investment Consulting, said she hopes that stable value does not get added to the group of approved options because since retirement plan participants suffer from inertia in their retirement savings decisions, being invested for too long in a traditionally low-return asset class might leave them with a potentially inadequate nest egg.
Fellow panelist Joshua R. Cohen, a Senior Consultant at Russell Investment Group, agreed with Walton’s assessment. “I really hope stable value is not on par with the other (options),” Cohen said. “It’s really hard to make a case for stable value.’
Although the panel did not always agree on the importance of stable value, target date funds appeared to be seen by all as a valuable default option – if chosen correctly. Walton reminded attendees that the fiduciary responsibility for monitoring lifecycle funds is the same as every other plan investment option. However, completing the same level of examination on these funds is difficult, panelists agreed, because the underlying fund components and asset allocation targets are so varied.
When evaluating suites of lifecycle funds, Peng Chen, president and chief investment officer at Ibbotson Associates, said advisers and sponsors should look at costs and who the underlying providers are. Chen also said it is important to look at the funds as they fit into a broader retirement income plan.
The panel agreed that these would be the most popular of the QDIAs – in fact, Joan L. Bozek, Managing Director, Merrill Lynch Global Wealth Management, said 75% of clients have opted to use them as a plan default.