Review your QDIA selection process
American Century Investments® provides a five-step framework to help you and your clients implement a prudent QDIA selection process.
5-step process helps manage fiduciary risk
Help your clients demonstrate that they satisfied their fiduciary obligations by adopting and implementing an objective and prudent Qualified Default Investment Alternative (QDIA) selection process. This five-step process provides a repeatable framework, allowing you to generate predictable results and save time while more effectively managing fiduciary risk.
#1: Assess participant needs
Look at participant demographics, behaviors, and financial sophistication. The assessment should include:
- Participant ages
- Contribution rates
- Asset allocation
- Withdrawal rates
Compare participant data to benchmarks based on demographic data. This assessment helps plan fiduciaries show that they’ve taken participant needs into account rather than using a one-size-fits-all approach.
#2: Gather data for QDIA options
Once you understand participant needs, collect information from QDIA providers with investment strategies and philosophies that align with those needs. A standardized set of questions will help you compare providers. Make sure to keep all responses so you can use them to prove due diligence, if necessary.
#3: Select a provider and document the process
Now evaluate the data, determine the type of QDIA most appropriate for your client’s plan, and select the QDIA. Make sure you document the entire process. Target-date funds are the most common QDIAs, but balanced funds and managed accounts also are used. After you choose the type of QDIA, analyze performance and risk, and evaluate fees and expenses.
#4: Implement the QDIA
Beyond the legally required participant notices, effective communication with employees is vital. It gives them all the information they need to make prudent decisions about the plan’s investments, including the QDIA. Consider re-enrollment if participants can benefit from better asset allocation.
#5: Monitor the selected QDIA
Consider how the QDIA will be monitored and whether the criteria in the current Investment Policy Statement (IPS) or other written plan guidelines is sufficient. If not, the IPS should be updated to include monitoring criteria specific to the QDIA.
Download the complete American Century guide to understand your potential responsibilities and liabilities when providing QDIA guidance. Get in-depth information about the selection process.
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