NEPC’s Mikaylee O’Connor was recently quoted in this PLANADVISER article exploring the evolving role of managed accounts as potential replacements for target-date funds (TDFs) as plan default options. Visit PLANADVISER to read the full article and see how industry experts, including Mikaylee, are weighing in on this shift in defined contribution plan design.
One of the most important decisions retirement plan sponsors and advisers have to make is which qualified default investment alternative makes sense for a plan’s participants. Authorized by the Pension Protection Act of 2006, with final regulations issued by the Department of Labor in 2007, QDIAs provide fiduciaries a safe harbor when defaulting participants into approved investments.
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Another advantage managed accounts could have in comparison with TDFs as a choice for QDIA is that managed accounts allow participants to leverage the core investment menu and potentially invest outside of the investment menu, allowing for both active and passive management, explains Mikaylee O’Connor, a principal in and head of defined contribution solutions at investment consulting firm NEPC.
“You have a diversified mix of investment managers, so you’re not just solely invested in the single target-date-fund manager,” O’Connor says.
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O’Connor says she would be a proponent of managed accounts as the default with the right provider—in part because there is so much data in the recordkeeping system that could be used to personalize plans—if the fees came down.
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O’Connor says she has not seen this as much and believes it is typically more popular among smaller plans.
Yet as is so typically the bottom line, O’Connor maintains she would be a proponent of the hybrid QDIA approach—if the fees for managed accounts decreased.
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