Voya Financial Developing Dual Investment Defaults

Voya Financial is working to launch dual qualified default investment alternative options, enticing plan sponsors by offering greater personalization of participants’ retirement investments to win market share from rivals and attract defined contribution plan assets to its managed account products.   

The dual default development is a QDIA enhancement currently “in the pipeline” to attract retirement plan sponsors and retirement plan advisers, according to a Voya spokesperson.

Voya expects the dual default QDIA product will attract retirement assets by virtue of its potential to provide plan participants with tailored retirement investments and greater sophistication for asset allocation inside a managed account. The New York City-based recordkeeper and asset manager did not reveal timing of the launch, fees or any additional details.

“As part of our ongoing efforts to build on our advice and guidance solutions at Voya, we are currently working on functionality to support multiple scenarios around ‘Dual QDIA’ offerings, specifically with our fiduciary managed account solution,” Jason White, Voya’s director of advisory services, said by email. “This includes capabilities to support combinations such as [target-date funds] or custom TDFs as the first QDIA, while helping plan sponsors with setting up a transition age for their employees. Once those participants reach their transition age, they would then be moved into the second QDIA of the fiduciary managed account program.”

Qualified default investment alternatives provide plan sponsors with a safe harbor for investing retirement plan participants’ contributions in the absence of participant direction. QDIAs were authorized by the Pension Protection Act of 2006, and final regulations were issued by the Department of Labor in 2007.

“A dual QDIA solution, …, can be particularly beneficial as a lower-cost option for younger investors who might have less complex retirement goals, such as a TDF or Custom TDF,” White said via email. “The solution also provides a more robust offering to participants as they get closer to retirement, given their potential retirement goals and more complex investment needs.”

Voya is readying dual defaults to compete for managed account assets, adds Douglas Neville, a St. Louis-based ERISA attorney, officer and practice group leader at Greensfelder, Hemker & Gale PC. 

“As the 401(k) market has become more sophisticated, and there’s more scrutiny of fees and investment responsibilities [and] fiduciary responsibilities the providers are going to be more sophisticated in terms of their offerings, and this is probably just the next evolution of that,” he said. “It probably offers somewhat of a competitive advantage as well: There’s a lot of competition in the market, so new and cutting-edge products like this will give plan sponsors more options and more reasons to potentially move to a company like Voya.”

Voya would join Empower, Principal Asset Management, Fidelity Investments and others when it launches a dual or hybrid default option.  

“They’re [Voya] catching up with a trend, [as] quite a few other recordkeepers already do this, such as [Charles] Schwab [Retirement Plan Services], Fidelity [Investments], T Rowe Price, etc.,” says Rob Massa, managing director and Houston operations retirement practice leader at Qualified Plan Advisors. “Prior to now, [plan sponsors] basically can pick a target-date as a QDIA or you can pick a managed account as a your QDIA. What a lot of people are starting to do is do what we like to refer to as a hybrid QDIA.”

Hybrid or dual defaults begin the same but then diverge, transitioning to specific allocations for an individual’s investment needs or circumstances when transformed to a managed account.

“What [plan sponsors] do is use a target-date [fund as the default] for the younger groups, so people who joined the plan at age 20 to say about age 45 or age 50, and then at age 45 or age 50, depending on the demographics, instead of continuing on the target-date glide path, you default them to a managed account program when they reach that age,” Massa says. “The reason we are starting to see more of this is what we find is people who are in the younger ages don’t have a lot of differences in their asset allocation needs.”

Participants could opt-in, opt-out or cancel the managed account program at any time, a Voya spokesperson says.