Conversions and QDIA vs Mapping

[austin3515]

If you are doing a conversion, you have two choices (listed below). Under both choices, the educational aspect of the change would of course be outstanding. All notices would be delivered, etc..

1) Any non-responders will be defaulted into a target retirement fund, or some other QDIA

2) Any non-responders will be mapped over into a similar fund to the one that they originally elected.

For me, I think option 1 could serously backfire in the event that market goes down (which we all know will happen at some point in the long-term). I use the example of the 30 year old who opted for the money market, but got defaulted into the 2040 fund instead, which obviously is very heavily weighted to equities. I also feel like 9 times out of 10 the people who call irate are the ones who lost money. IF they feell they lost money because of anything connected to our actions, well then they are incensed.

I'm not against the QDIA approach for dribs and drabs of money related to profit sharing. It's when it involves peopels life savings (in some cases) that the risk is increased. And to me, the mere fact that you sent them a QDIA Notice will not stop them from suing you. It may ensure you prevail in court, but my number one priority would be to stay out of court in the first place.

And as for mapping, the logic from a fiduciary perspective of placing people in funds that are similar to thsoe they originally elected seems to be beyond reproach. Who could claim that it was unreasonable to move Susan from a money market, or an S&P 500 index, to the same type of fund at the new vendor? Of course Susan had the opportunity to select new funds, but did not. Instead of defaulting into a fund that has no correlation to her original intention, she is being "defaulted" into funds that do reflect her intentions.

I think this topic is critically important because vendors are giving a lot of pricing breaks these days in exchange for using their target retirement funds as the default during a conversion (i.e.., in lieu of mapping).

[mbozek]

If you are doing a conversion, you have two choices (listed below). Under both choices, the educational aspect of the change would of course be outstanding. All notices would be delivered, etc..

1) Any non-responders will be defaulted into a target retirement fund, or some other QDIA

2) Any non-responders will be mapped over into a similar fund to the one that they originally elected.

For me, I think option 1 could serously backfire in the event that market goes down (which we all know will happen at some point in the long-term). I use the example of the 30 year old who opted for the money market, but got defaulted into the 2040 fund instead, which obviously is very heavily weighted to equities. I also feel like 9 times out of 10 the people who call irate are the ones who lost money. IF they feell they lost money because of anything connected to our actions, well then they are incensed.

I'm not against the QDIA approach for dribs and drabs of money related to profit sharing. It's when it involves peopels life savings (in some cases) that the risk is increased. And to me, the mere fact that you sent them a QDIA Notice will not stop them from suing you. It may ensure you prevail in court, but my number one priority would be to stay out of court in the first place.

And as for mapping, the logic from a fiduciary perspective of placing people in funds that are similar to thsoe they originally elected seems to be beyond reproach. Who could claim that it was unreasonable to move Susan from a money market, or an S&P 500 index, to the same type of fund at the new vendor? Of course Susan had the opportunity to select new funds, but did not. Instead of defaulting into a fund that has no correlation to her original intention, she is being "defaulted" into funds that do reflect her intentions.

I think this topic is critically important because vendors are giving a lot of pricing breaks these days in exchange for using their target retirement funds as the default during a conversion (i.e.., in lieu of mapping).

Austin:

Short answer on this Q. Using a QDIA as a default option in a plan conversion is a fiduciary decision that must be prudent for the plan participants. If some 30 something's account is moved from a MM fund to a QDIA which has high volatility b/c of its weighting in equities then there is a risk of breach of fiduciary duty in selecting an imprudent investment option. Plan must select investment option that best tracks the participant's investment choice.