Target date funds tops for retirement plans

Target date funds are benefiting from the requirement that 401(k) plans include qualified default investment alternatives, according to researchers from Financial Research Corp. of Boston. In a study of QDIA selection over the past six months, target date funds were the top choice of plans, Luis Fleites, vice president and director of retirement markets at FRC, said at the firm’s fourth annual retirement conference today in Boston. Looking at how plan sponsors select the default option was the focus of a separate study conducted by Chatham Partners LLC of Waltham, Mass. In that survey of 500 plan sponsors, the firm found that 57% had implemented automatic enrollment and 25% were considering it. “Sixty-six percent had made the QDIA selection,” said Joshua Dietch, managing director at Chatham Partners. “Larger plan sponsors were more likely to have made the selection.” Chatham Partners also found that target date funds were prevalent, particularly in plans ranging from $10 million to $1 billion in assets. Larger plans gravitated toward index funds, Mr. Dietch said. The study also looked at the role of record keepers. “Forty percent of the plan sponsors were leaning on their record keepers to assist with fund selection” Mr. Dietch said. “Eighty-six percent of the time the record keeper played a role and made specific recommendations or offered a range of products.” More than 140 investment professionals attended the conference, which focused on trends and product development in defined contribution and individual retirement account markets. Panels also explored the retirement income solutions market, which FRC projects will climb to $7 trillion by 2023.