Recommendations to the ERISA Advisory Council on QDIAs

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The ERISA Advisory Council is conducting hearings on Qualified Default Investment Alternatives (QDIAs), seeking recommendations for improvements. The big challenge is making better decisions for people who do not want to engage.

At $4.5 trillion and growing, target date funds (TDFs) are very important and in need of serious improvements, especially near their target dates where baby boomers are currently exposed to substantial sequence of return risk.

What follows are recommendations for improving TDFs that I’ve submitted to the Council. There should be a “Do no harm” Hippocratic Oath for TDFs, but there definitely is not currently.

Recommendations to the 2024 ERISA Advisory Council Study of Qualified Default Investment Alternatives (QDIAs) Specifically, Target Date Funds

Respectfully Submitted By Ronald Surz, Member of the Public

President of Target Date Solutions,Thursday, September 12, 2024

ERISA Advisory Council,

Thank you for the opportunity to share my experience and beliefs about the most popular QDIA – target date funds (TDFs). I have patented my Safe Landing Glide Path design that has been incorporated in target date funds since 2008, coincident with the Department’s QDIA regulations. The QDIA is an essential component of participant-directed 401k plans where the participant has failed to make an affirmative investment election, thereby defaulting their investment decision to their employer.

The primary challenge in creating a “good” QDIA is making investment decisions for people who do not want to engage, so we don’t know what each individual wants. As account balances increase and as individuals approach retirement, their needs, goals, marital and familial status, health, longevity, and accumulated assets vary substantially, yet a QDIA can only do what is best for most because it is one-size-fits-all.

Academics have addressed this challenge in their lifetime investment theory that is the cornerstone of TDF glidepaths. This theory is very safe for those near retirement at 80 percent in risk-free assets. TDF providers say they follow this theory, but they don’t – they’re much riskier at their target date than the theory, with 90 percent in risky assets.