While the de facto options for most retirement plans are target date funds (TDFs) and risk-based funds, not all QDIAs are created equal. When evaluating funds and providers, watch out for red flags, such as unreasonably high fees or inappropriate glide paths.
Also, TDFs assume that all investors in one age group have similar needs. They don’t account for differing risk tolerances, or participants who may end up retiring sooner or later than their projected retirement date due to health concerns, a lack of employment opportunities, or inadequate savings. Risk-based funds claim to address some of these issues, however, most risk-based funds make inappropriate assumptions about participants’ risk tolerance that actually prevent them from taking the proper amount of risk for their situation and time horizon, causing them to fall short of their accumulation goals.
Avoiding fiduciary pitfalls through proper due diligence and careful research is critical when selecting any fund in your plan’s investment lineup, not just QDIAs. Additionally, keeping detailed records of your rationale for choosing certain funds and educating participants about how the funds work, what they do and don’t do, and the associated risks are all key to reducing your fiduciary exposure.
Learn more about reducing fiduciary risk when choosing QDIAs : CLICK HERE