Benefits

Plan Sponsors Not Making Best Use of TDFs

By Kristen Heinzinger editors@plansponsor.com | October 16, 2012
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October 16, 2012 (PLANSPONSOR.com) – While more than 50% of plan sponsors offer target-date funds (TDFs) in defined contribution (DC) plans, only half of them are using TDFs as their default, an AllianceBernstein survey found.

The 3rd biannual survey of plan sponsors found many that offer 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.”