Managed Accounts as the QDIA
Nearly seven out of 10 retirement plans that automatically enroll participants, 69.2%, turn to target-date funds (TDFs) as the qualified default investment alternative (QDIA)—be it an actively managed, indexed or custom TDF (33.5%, 25.0% or 10.7%, respectively)—according to the 2018 PLANSPONSOR Defined Contribution (DC) Benchmarking Report. Less than 10%—7.9%—use professionally managed accounts as the QDIA.
While the incidence of managed accounts as the default investment in plans with automatic enrollment is quite low, we decided to turn to the 2018 PLANSPONSOR DC Survey to see if the presence of a retirement plan adviser beneficially influenced these plans. The results were mixed.
When an adviser was involved, 53.45% of plans with managed accounts as the QDIA had a default deferral rate above 4%. This is noticeably higher than the 47.61% of adviser-led plans where the QDIA was not managed accounts.
Default Deferral >4%
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The findings on deferrals were similarly positive when managed accounts’ advisers were 3(21) fiduciaries: Deferrals were nearly 5 percentage points higher (55.00% vs. 50.13%) than when a 3(21) oversaw a non-managed-account QDIA. But when the adviser was a 3(38) fiduciary, the findings reversed: 45.91% of the plans using something besides managed accounts had a default deferral rate north of 4% vs. 33.33% of plans with managed accounts.
The average deferral rates were also mixed when it came to adviser-led plans that use managed accounts. Overall, the deferral rate in these plans was 7.31% vs. 6.90% in the rest. The 3(38)-advised managed-account plans won out over other 3(38)-advised plans, with deferral rates of 8.07% vs. 6.68%, respectively. Yet, when the adviser was a 3(21) fiduciary, deferral rates were higher in the non-managed-account plans: 7.15% vs. 6.82%.
As to savings, using a 3(38) adviser seemed to most benefit managed-account-QDIA plans, which had an average balance of $106,329, compared with $97,523 for plans with other types of QDIAs. Balances were also slightly higher for the managed account QDIAs compared with the others when a 3(21) adviser was present: $114,342 vs. $112,553. But when the adviser was not a fiduciary, the figures favored the other QDIA types: $100,197 vs. $106,410.