Since they were introduced in the ‘90s, target-date funds have become one of the fastest-growing investments in the workplace retirement market. And while there is much talk about TDF glide paths and the amount of risk investors should have in their accounts as they near retirement, the overall setup of TDFs has changed little since their inception.
Stadion Money Management of Watkinsville, Ga., is hoping to change that with its new StoryLine 401(k) managed account solution, which targets the small-plan market. It currently manages 8,000 small plans in the U.S.
“Participants in the nation’s smallest 401(k) plans have been overlooked by the retirement industry because there hasn’t been an efficient way to deliver customized advice down to the plan participant level in micro and small plans,” says Tim McCabe, senior vice president and national retirement sales director at Stadion. “It’s well known that more than 90% of retirement plans have assets of less than $5 million, which to me means there’s an awful lot of Americans saving for retirement without advice, direction, or perhaps even access to the most appropriate investment vehicles.”
Stadion is hoping to not only fill that gap but to offer something most TDFs have not been able to offer: a personalized account tailored to the individual investor’s own circumstances and needs.
“They are the least served market and are unfortunately where the majority of Americans reside,” McCabe says.
StoryLine’s approach recognizes every sponsor and employee as unique. Stadion works with each plan sponsor to tailor their 401(k) managed account option based on the company’s workforce and goals. Then, with Stadion’s participant-friendly Web interface, employees are encouraged to further define their individual investment paths based on personal risk profiles, expectations and goals. StoryLine also allows participants to include outside and spousal assets in their calculations.
McCabe adds that it isn’t his company’s intent to bash traditional target-date funds, but to make these types of accounts more customizable.
Over the past 10 to 15 years, TDFs have evolved to better help plan participants achieve retirement readiness without much work on the part of plan participants. Many plans today choose TDFs as their qualified default investment alternative, meaning that employees are automatically defaulted into a TDF option if they don’t make retirement contribution selections on their own.
“TDFs were a wonderful improvement for the American public from how they had to do it before. The only problem is picking a TDF. All employees are not alike,” says McCabe. Since not all 50-year-olds are alike and companies don’t pay all 35-year-olds the same, “why do we think their investment needs are going to be the same? StoryLine is taking that next leap forward from one-size-fits-all to tailoring and customization to individual needs and companies’ needs.”
Stadion developed a short questionnaire that plan participants can take online at the retirement plan enrollment meeting. Using their tablets or smartphones, workers can browse the company’s target-date options and then personalize their choice right then and there. The company worked with behavioral finance experts to come up with nine questions that determine a plan participant’s personality type and thus their tolerance for risk.
If people leave the enrollment meeting without having made a decision about their retirement account, they won’t think about it again until their quarterly statement arrives, McCabe says. If, through technology, companies can get employees to make their asset allocations during the enrollment meeting, they are more likely to stick with the plan.
“As we roll out new versions of this we will tailor our message to the age groups we are dealing with. You’ve got to make it easy, fun and accessible for it to work,” he says.
Like other TDFs, Stadion de-risks individual portfolios as they near retirement.
Many TDFs have a high percentage of their accounts invested in equities and international equities. There are companies that believe that they have to “maximize equity exposure because people are not saving enough to get the dollars they need,” McCabe says. “Not ours. The most dangerous time for plan participants is before they retire. We focus defensively for our clients but, at the same time, we also realize that we shouldn’t tell people how to invest their money. They should tell us how to invest their money.”
Paula Aven Gladych is a freelance writer based in Denver.
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