Great-West Investments creates a new model to help bolster participant engagement
Participants may see personalized benefits as financial needs change over a lifetime
Empower Retirement today announced the development of a first-of-its-kind qualified default investment alternative (QDIA) for retirement plans that is designed to help plan participants whose engagement with the retirement planning process changes over time.
The new model, known as “dynamic QDIA,” is based on research and development work by Great-West Investments and Empower that examines how some participants’ perception of retirement and their financial decision-making evolves over the course of their working years. Some individuals, who are less interested in retirement planning in their early working years, are likely to become increasingly engaged as they move into the middle stage of their career, according to findings.
The new offering is designed to solve for that participant behavior by leveraging existing QDIA regulations to direct participant savings into a competitive investment option, such as a target date fund, early in their careers. Later on, when a pre-determined set of criteria are triggered, the participant will shift into a managed account, thereby offering the opportunity to receive personalized asset allocation and advisory services as they begin to focus on the transition to retirement.
Empower and Great-West Investments today will publish a joint white paper “In Search of a More Dynamic QDIA” explaining the new default model and making a broad argument for the benefit of new considerations in default investing.
Later this year, Empower will launch a new product offering to plan sponsors based on the dynamic QDIA concepts described in the paper.
Great-West Investments and Empower Retirement operate as units of Great-West Financial. Great-West Investments develops and delivers innovative investment solutions for individual and retirement investors, with over $89 billion in assets under management and supervision. Empower Retirement, formed in 2014, is the nation’s second-largest retirement plan record keeper with some 8 million plan participants.
“The great challenge plan sponsors face is how to help their participants who do not make decisions about their retirement plan. We hear it every day,” said Edmund F. Murphy III, President of Empower Retirement. “One important touch point we have with these participants is through their default option so we wanted to explore how we could create an innovative offering to help improve engagement.”
“Plan sponsors and financial advisors can now present a new model that is optimized for plan participants who have differing needs over their savings time horizon,” said Murphy.
Part of the argument for a new QDIA model is that each individual’s financial needs are unique and become more prevalent over the course of time.
“Investments within retirement plans have the capability to be much more than off-the-shelf products built for the average retirement plan participant,” said David Musto, President of Great-West Investments. “As an investor’s financial needs change over a lifetime there is an opportunity for default solutions to adapt to those needs.”
A key component to Empower’s new QDIA model is achieving the right interplay between sponsors who have expressed a need for new thinking around engagement models and participants who do not make investing decisions.
“Ultimately, we believe that this model will help drive improvements in participant engagement and that’s going to be a benefit to participants and plan sponsors alike,” said Musto.
Musto explained that the 2006 Pension Protection Act was effective in establishing the QDIA and presenting viable options for use in retirement plans. However, in the ensuing decade advances in behavioral finance research, financial planning models and investment solutions create an opportunity for new models to help participants who do not take an active posture toward retirement planning.
“The goal of Dynamic QDIA is to maximize an investor’s ability to retire at the time of their choosing,” said Musto. “We need to meet them where they are today and help them get to a place tomorrow where they’re engaged and actively planning to achieve the retirement security they need.”
About Empower Retirement
Headquartered in metro Denver, Empower Retirement administers $440 billion in assets for 8 million participants. It is the nation’s second-largest retirement plan record keeper by total participants (Pensions & Investments, April, 2016). Empower serves all segments of the employer-sponsored retirement plan market: government 457 plans, small, midsize, and large corporate 401(k) clients, non-profit 403(b) entities and private-label recordkeeping clients. For more information, please visit www.empower-retirement.com.
About Great-West Investments
From its headquarters in Greenwood Village, Colorado, Great-West Investments creates and delivers investment solutions for investors, advisors and the retirement market. Great-West Investments includes Great-West Funds, Inc., Great–West Capital Management, LLC, and Advised Assets Group, LLC, the latter two being registered investment advisers. Great West Investments has more than $89 billion under management or supervision in mutual funds, managed accounts, capital preservation products, and retirement income solutions. For more information please visit www.Greatwest.com.
Stephen Gawlik – 303-737-0899 (office), 617-417-4408 (cell)
To learn more about how we’re empowering plan sponsors and their participants to be more engaged in their retirement plans than ever before, call us at 800-719-9914.