Some DC Plans Not Taking Advantage of QDIAs

One-fifth of defined contribution (DC) plan sponsors surveyed by AllianceBernstein lack a default investment altogether—more so among the smallest plans (37%) than the largest (13%).

According to preliminary results from an upcoming survey report, another 30% of plans still use a stable value or money market fund as their default investment.

One in five respondents indicated they do not know if their plan’s default is a qualified default investment alternative (QDIA), and half of the small number of plan sponsors who said an equity fund was their default mistakenly thought that fund was a QDIA. Two-thirds of those with stable value or money funds as a default said it is their QDIA, even though stable value or money funds are only valid as QDIAs for the first 120 days after participant enrollment.

Richard Davies, senior managing director of defined contribution and co-head North America at AllianceBernstein Institutional Investments, says the finding that roughly half of plan sponsors do not take advantage of QDIA safe harbor protections seems to parallel the finding that more than one-third of plan sponsors do not actually know they are fiduciaries.

The survey of more than 1,000 plan sponsors, representing a balance from across the full universe of DC plan sizes, finds that when the default is not also the plan’s designated QDIA, plan sponsors are less likely to consider themselves plan fiduciaries (48% vs. 70% for those whose default is also their designated QDIA). They tend to rate fiduciary matters as lower in importance (only 33% “very important” vs. 56%). In addition, among plan sponsors whose default does not qualify as a QDIA, very few (15%) say they plan to change their default to a QDIA in the next two years.

Plan sponsors with a default are more likely to select critical measures of plan success such as “improving participation” (39% vs. 30% for those without a default option) and “improving salary deferral amounts” (22% vs. 15%). They are also far more likely to rate “increasing plan participation” as a highly important goal (60% vs. 47%).

Respondents whose DC plans do not have a default are less likely to offer automatic escalation (21% vs. 36% for those with a default), and they’re more likely to believe that participants want to make their own participation and investment decisions. They’re also less likely to have an investment policy statement providing guidelines for fiduciaries on making investment decisions (41% vs. 53%).

The release of full results of AllianceBernstein’s survey of DC plan sponsors is expected in March. More information is here.