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Masters thinks more plan sponsors have not adopted TDFs as their default for two reasons: The idea of QDIAs is relatively new so many plans do not fully appreciate the benefits, and some plan sponsors do not realize the behavioral benefit of making it the default, which leads to higher adoption rates. AllianceBernstein research also found that the majority of midsize and large-plan sponsors are failing to leverage their assets to provide more specialized or customized TDFs. According to the company’s survey, 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.Earlier this year, United Technologies Corporation (UTC) launched Lifetime Income Strategy, which is the default investment option designed by AllianceBernstein that combines the simplicity of a target-date fund (TDF) with the security of lifetime income. The Lifetime Income Strategy is an age-based default investment option through which each DC plan participant has access to a target-date portfolio built specifically for them (see “Default Investment Option Addresses Longevity Risk”).“I think that the wave of the future in the large-plan market is custom TDF structure,” Masters said.In the small and midsize markets, Masters said TDF customization will likely not catch on because customizing a TDF is less cost-effective for smaller plans. However, he said “there will be lifetime income options available really across the whole gamut of plan sizes.”
Masters thinks more plan sponsors have not adopted TDFs as their default for two reasons: The idea of QDIAs is relatively new so many plans do not fully appreciate the benefits, and some plan sponsors do not realize the behavioral benefit of making it the default, which leads to higher adoption rates.
AllianceBernstein research also found that the majority of midsize and large-plan sponsors are failing to leverage their assets to provide more specialized or customized TDFs. According to the company’s survey, 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.
Earlier this year, United Technologies Corporation (UTC) launched Lifetime Income Strategy, which is the default investment option designed by AllianceBernstein that combines the simplicity of a target-date fund (TDF) with the security of lifetime income. The Lifetime Income Strategy is an age-based default investment option through which each DC plan participant has access to a target-date portfolio built specifically for them (see “Default Investment Option Addresses Longevity Risk”).
“I think that the wave of the future in the large-plan market is custom TDF structure,” Masters said.
In the small and midsize markets, Masters said TDF customization will likely not catch on because customizing a TDF is less cost-effective for smaller plans. However, he said “there will be lifetime income options available really across the whole gamut of plan sizes.”
Corie Russelleditors@plansponsor.com