TDFs are all the rage in DC plans, becoming the go-to QDIA and gathering assets at an increasing rate. But does the “one size fits all” investment strategy for everyone born within five years of each other make sense, regardless of their salary, account balance or access to outside assets? On the other hand, uptake on managed accounts is meager — estimated at 2%. Is there a middle ground?
In a new NAPA Network video, top plan advisor Jim Pupillo from Hightower Arizona talks about Liability Driven Investing (LDI), a concept that is a popular with DB plans. Record keeping systems have data that can select how much risk a participant needs to be taking, based on, among other things, age, salary, deferral rate, account balance and access to a DB plan, which could automatically place a participant in the appropriate glide path to achieve acceptable income replacement rates.
According to NAPA Net the Magazine columnist Jerry Bramlett, there are basic flaws with LDI, “which assumes that the employee will work forever at the same company or will always roll over to the same investment strategy, and that when interest rates spike and their values fall, they will stick with the program.”
The industry needs to continue the dialogue about managed investments, viewing TDFs not as the ultimate destination, but just an important milestone on the journey to the ultimate destination: improving outcomes.
