Will any QDIA do? Fiduciary duty says otherwise

In your March 6 editorial, “Scrutinizing target-date funds,“ you wrote: “A 2009 congressional special committee on aging investigation found "it is currently unclear whether investment firms are prudently designing these funds in the best interest of the plan sponsors and their participants.' It "found significant differences in the asset allocations and equity holdings within these funds, raising questions about whether plan sponsors and participants understand the underlying assumptions and risk associated with these products.' ”

Target-date funds have in fact become riskier since the 2008 debacle, setting the stage for disaster when the current bubbles burst. Lawsuits will be won on the platform of “lessons not learned,” and the fact that fiduciaries (sponsors and their advisers) are not vetting their TDF selection. Risk has increased because: (1) equity allocations, especially to U.S. stocks, have increased in order to compete in the performance horse race, (2) long-term bonds have become ultrarisky, driven by quantitative easing manipulation, and (3) risk of lawsuits is higher now than in 2008 because current TDF assets exceed a $1 trillion whereas they were only $200 billion in 2008. Importantly, fiduciaries believe they can throw darts at the qualified default investment alternative dartboard; they believe that any QDIA will do. The fiduciary duty of care says otherwise.

RONALD SURZ

President, Target Date Solutions

San Clemente, Calif.

This article originally appeared in the March 20, 2017 print issue as, "Will any QDIA do? Fiduciary duty says otherwise".