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Defined Contribution Quarterly Q3 2021

(R)evolution of the QDIA Landscape

There has been tremendous focus on and increased utilization of default investing since the Pension Protection Act of 2006 (PPA). While several types of investments are eligible under the qualified default investment alternative (QDIA) rules, Target Date Funds (TDFs) have captured the bulk of the assets. Will TDFs continue their dominance as QDIA options in DC plans?

We believe the market share among the QDIA types may now be poised for greater change as outlined in the full report.

Percent of TDF Use as QDIAs

Target Date Funds make up 79% of the QDIA plan options.

Source: PSCA's 63rd Annual Survey, published 2021.

Growth of TDF Assets

The target date market has grown rapidly over the last decade to an estimated $2.8 trillion.

Source: Morningstar, 2021 Target-Date Strategy Landscape. Data as of 12/31/2020.

What is a Hybrid QDIA?

Industry trends emerging around the desire for (1) retirement income and (2) increased personalization/ customization may lead to a revolution of QDIAs altogether. A hybrid QDIA is an approach in which a participant’s default investment starts as one type of investment (such as a target date fund) and, upon reaching a certain threshold (e.g., account balance, age), automatically transitions to a different type of investment (such as a more retirement-focused solution like a managed account). 

Source: Goldman Sachs Asset Management.

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