PLANADVISER - November/December 2019 - 45

including drawdown strategies and guidance for selecting
the right time and location for retirement and best timing
for drawing Social Security benefits.
" We talked to three big recordkeepers about dynamic
QDIAs, " says Greg Adams, a consultant at Fiduciary Investment
Advisors in Windsor, Connecticut. " One has laid its
managed account product over a TDF, with a transition
trigger based on assets, age or vested status in outside benefits.
Another firm had no interest in them.
" The third is more enthusiastic, " he continues. " It built
a white-glove transition service around its QDIA. But what
really stood out was that, when participants hit the transition
trigger, they get a call from a Series 65 representative to
tell them what's happening. This recordkeeper feels that its
managed account service can be a real value-add and that
having an adviser reach out to provide investing and general
financial advice will get the participants more engaged. "
State Street Global Advisors (SSGA) has developed two
dynamic QDIA structures, says Greg Porteous, head of the
firm's defined contribution intermediary group, in Boston.
One structure is managed accounts. " We looked at where
the largest balances are, and where people need the most
customization in portfolio allocation, and built a program
that gives participants an off-the-shelf TDF until age 55; then
it defaults them into a managed account, where we partner
with [recordkeeping firm] Empower Retirement. It's all index
funds, and Empower's participant data is fed into a Morningstar
managed account engine for personalized advice. "
Porteous also cites a pending guaranteed-income QDIA,
where participants invest in SSGA's TDFs until age 55, at
which point a portion of assets-25%, up to $130,000-is
invested in long-duration fixed income. When the person
turns 65, those proceeds purchase a qualified longevity
annuity contract (QLAC). " From age 65 to 80, the participant
can draw down from the 75% of assets in [his] account and
then receives lifetime income from the annuity, " Porteus
explains. Building the portfolio of fixed-income assets over
time to purchase the annuity is akin to dollar-cost averaging
and helps reduce the point-in-time risk of buying the annuity.
Another structure under consideration is what Jason
Shapiro, director of investments at consultants Willis
Towers Watson, in New York City, calls " unwrapped " targetdate
funds. " Actually, these aren't new and have long been
used in the small- and midsize-plan market in the form of
model portfolios. Every recordkeeper says its platform can
handle them.
" Sponsors would have the flexibility of defaulting into
an annuity product, a deferred annuity and a diversified
managed payout fund, and those could be part of the
model portfolio created for people near or in retirement, "
Shapiro says.
Advisers are split on what sort of choices-if any-would
make the best retirement defaults. " A managed account is
not where we see the value, " says Greg Hobson, a partner
and senior financial adviser at Greenspring Advisors in
Towson, Maryland. " And an annuity solution could be great
for participants, but we're worried about not causing harm
to people who might need access to their funds. "
" Most plan sponsors acknowledge that a managed
account will lead to a better outcome, but they're worried
about the incremental cost, " observes Vince Morris, head of
Resources Investment Advisors, in Overland Park, Kansas.
Proof that the concept works would be a help. " When we
have data to show that this makes an impact on people's
lives, the cost side will become less of an issue, " Morris says.
According to Adams, " It's going to take decades before
we know whether a managed account creates value for
participants. Until we see how well this works, putting it in
as a default may be presumptuous. "
" I'd like to be able to
Participants'
paths quickly
diverge and
soon become
complicated,
depending
on what
assets they
own outside
the plan ...
put the decision in a box
through a default, " says
Hobson, " but it's a time
when people need individual
counseling
more
than they need plan sponsors
making decisions for
them. "
Although having
a
retirement income default
would institutionalize
some decisions, advisers
seem unworried about
being crowded
out of
the process. In the case
of Empower's managed
account offering, says
Porteous, " It incorporates
the adviser more than an
off-the-shelf TDF does.
[For participants] age 55, the adviser is guiding asset allocation
and selecting the individual investment options based
on the makeup of the participants. That's a role that is
more active-and for longer-than just selecting a TDF and
letting it ride. "
Ten years out, the dynamic QDIA's record of participant
outcomes will speak for itself. Moreover, " We'll get better
at simplifying these choices, " says Martha Tejara, head
of consultants Tejara & Associates in Bainbridge Island,
Washington. " That's what we did with TDFs, and it's what
we have to do for handling 401(k) retirement. The solution
can be sophisticated-but simplified so participants aren't
terrified of it.
" Look at how the Department of Labor [DOL] requires
disclosure of the different distribution options for DC plans, "
she says. " It's so complicated that many employees choose
what they think is simplest-just cashing out-when in fact
that is the most complicated decision they can make. "
" We're all looking for the absolute best solution that
considers every individual and what each of them needs, "
says Shapiro. " In the meantime, that thinking has stopped
the adoption of a lot of good things, for at least some of the
population. To paraphrase Voltaire, 'We can't let the best be
the enemy of the good.' " -John Keefe
Art by Julie Benbassat
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PLANADVISER - November/December 2019

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