Default Investments: Made to Stick?
Plan participants stay with some types of vehicles longer than others.
By David Blanchett and Dan Bruns
The Pension Protection Act of 2006 provided safe harbor for three types of qualified default investment alternatives, or QDIAs, in defined-contribution plans: target-date funds, target-risk (or balanced) funds, and managed accounts. Since 2006, target-date funds have emerged as the predominant default choice among plan sponsors. However, there is little research exploring the likelihood of the participants staying in various default investment options. In this article, we explore the demographics associated with default acceptance and which default option appears to be the “stickiest” among defined-contribution participants.