Retirement Savings Policy by Michael P. Barry

Author:Michael P. Barry
Language: eng
Format: epub
Publisher: De|G Press
Published: 2018-07-15T00:00:00+00:00

QDIA/Target Date Funds as the Preferred Asset Allocation

Over time, QDIA target date funds became a solution not just for participants who did not elect an investment allocation, but also for participants who made what would conventionally be viewed as a “sub-optimal” asset allocation election or who were simply uncomfortable or dissatisfied with their own elections.

Thus, in effect, target date funds became the preferred or recommended asset allocation strategy for most participants. In the spirit of libertarian paternalism, participants who wanted to customize investment, e.g., participants with big account balances or significant investment knowledge, could always affirmatively opt for a different asset allocation.

Indeed, some sponsors have, in effect, required participants to revisit their asset allocation decisions through “reenrollment”—periodically defaulting participants back to the target date fund unless the participant affirmatively elects a different asset allocation.

* * *

Thus, we see that the solution to the 401(k) asset allocation adequacy challenge took a path similar to the one taken with respect to the 401(k) savings adequacy challenge—beginning with talk (investment education) and ending with defaults. Most view defaulting participants routinely into an asset allocation appropriate to their age as effective.

The other 401(k) investment challenge—really a complex of issues focused on the construction of the 401(k) fund menu, the selection and monitoring of funds and the fees paid for investment and other services typically billed to participants’ accounts, and the application of ERISA fiduciary rules to these decisions—is more complicated and more intractable.

In the following chapters we are going to begin with a discussion of the regulatory framework—ERISA’s fiduciary rules. Then we will revisit the issue of how 401(k) plans are structured, this time with a focus on who does what and how they get paid.

We will then survey ERISA litigation in three key areas: (1) the fees paid to plan investment and administrative services providers; (2) the prudence of fiduciary fund menu choices; and (3) the special case of litigation with respect to participant investments in company stock.

We will then consider, at length, fiduciary best practices in these areas.

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