SURVEY SAYS: – Second Thoughts on the Default?

February 19, 2009 ( - The markets have surely given even the most expert and calm among us reason to doubt, or at least reconsider, things we perhaps once took for granted.

This week, I asked readers if they were considering any changes in their plan’s default investment option(s).  

As it turns out, most were sticking with their current default choice:

  • 30.4% – sticking with target-date
  • 17.9% – sticking with risk-based/lifecycle
  • 16.1% – sticking with other option
  • 7.1% – sticking with stable value
  • 1.8% – sticking with money market

Just over 11% were making some kind of move:

  • 5.4% – moving to a target-date
  • 3.6% – moving to a different target-date
  • 1.8% – moving to risk-based/lifecycle

On the other hand, 14.3% admitted that they weren’t sure (yet) if a change was in the offing.

One reader highlighted the occasionally convoluted path to picking a default:

"About 2 1/2 years ago, after much persuasion, I finally convinced my committee to change the default option from a money market fund to stable value. I had tried to get them to move to a target date fund or a balanced fund, but changing to the stable value fund was considered risky enough. (Gotta' preserve that $1 share cost and be damned with modern portfolio theory and the nature of long-term retirement investing. Geez, how rebellious and unconventional of me to even think of putting them in something that might actually lose value. If this was the olden days, I'd have been run out of town on a rail or tarred and feather for my blasphemy.)

However, with the power of the DoL and a QDIA behind me, I was able to convince them to move to a target date fund (they wouldn't even consider managed accounts). I think at this point, if we changed the default option again, we would lose all credibility with already skeptical participants - some of whom already have defaulted money market funds, defaulted stable value funds, and defaulted target date funds in their plan accounts."

Other changes/comments included:

"Yes, we are considering a change to our conservative default fund to a less conservative one. I think we've been talking about it for over 2 years … so any year now, I'm sure it will happen….!"

"We're changing the 401(k) provider. Now that's a change!

"We're sticking with risked- based, but as a TPA, I can tell you that we have clients going back to money market as the default and saying to heck with the QDIA."

"Taking a long hard look - again. I expect we will stick with target date funds as the default but may want to look at other providers."

But this week's Editor's Choice goes to the reader who said that they were sticking with a target-date default, "Although our committee members who argued that we should stay with stable value last year, are probably thinking "I told you so" now."

Thanks to everyone who participated in our survey!