PLANSPONSOR - December 2018/January 2019 - 43

investments and maybe change the QDIA is that the TDF manager
has altered risk levels in the glide path. Shapiro says, since the
recession of 2008 and 2009, he has seen some managers create
more conservative glide paths and others move to more aggressive
ones to take advantage of market recovery. But, in general, " If you
look at the distribution of risk in the last five years, compared with
today, you will see many more in the middle, " he contends.
Shapiro says plan sponsors need help in determining
whether the risk level of their QDIA TDF series is still suitable
for the plan's population-consistent with EBSA's advice
to periodically review selected TDFs. " We run analytics to help
plan sponsors understand that need. The analysis assumes
that, by design, participants could stay in this investment for
their entire career, " he says.
According to Shapiro, this analysis includes looking at
the objectives and goals of the plan, such as: creating a target
income replacement ratio; improving participants' saving
behaviors; and establishing whether the DC plan will be the
sole retirement vehicle for participants or supplementary to a
defined benefit (DB) plan.
Plan sponsors should have an analysis done for different
glide paths stochastically to see what participants could achieve
with each and the probability of reaching that goal. If participants
can depend on DB plan benefits, they could possibly
tolerate a riskier glide path. If participants are saving too little, a
more conservative glide path may make sense. But if savings are
low, investing more aggressively could also help the participant
achieve retirement readiness.
Plan sponsors may also potentially move to a different
risk-level TDF series if participant demographics change, says
John Faustino, chief product and strategy officer at Fi360 in
Pittsburgh.
If the participant population, as a whole, ages over time,
this may warrant moving to a different risk level. Events such
as a corporate acquisition or hiring spree could change the
average participant age, driving a move to a different risk level,
he explains. Or a change in plan demographics could lead the
sponsor to change from a target-date option to a target-risk or
balanced fund option.
As with all investments, a QDIA change may be in order if
the vehicle's performance relative to the established peer group
has negatively changed, Faustino says.
Custom TDF Series
EBSA's tips for fiduciaries also say that plan sponsors should
research whether a custom or nonproprietary target-date fund
would be a better fit for their plan.
Shapiro says there are two reasons DC plan sponsors may
want to consider changing from an off-the-shelf TDF series to a
custom-designed series. One is demographics. Some sponsors
have a participant population that is especially unique-e.g., a
workforce that is very highly compensated, has large DB plan
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