Nearly every retirement plan should have a qualified default investment alternative (QDIA), but which one is best for your client’s plan? According to the Department of Labor, a QDIA must be a lifecycle or target date fund (TDF), a balanced fund, or a professionally managed account.

While there are three categories of QDIAs, TDFs have the lion’s share of defaulted participant assets.¹ Managed accounts are a very distant second place, and balanced funds may be appropriate for the participants of the plan as a whole but may not meet the needs of individual participants.

Designed to help employees “set it and forget it,” both TDFs and managed accounts automatically become more conservative over time to help safeguard employees’ portfolios against market volatility. However, many employees still make rash decisions during market downturns and lock in their losses by selling at the bottom. A traditional QDIA doesn’t solve this problem—and that’s where Income America^™ 5ForLife comes in.

A QDIA that helps employees stay the course

Designed as a series of retirement portfolios, Income America 5ForLife provides a lifetime income guarantee of 5% each year, beginning at age 65.² It’s SECURE Act compliant, platform agnostic, and portable so plan participants may be able to take their balance to another qualified plan or IRA and retain an income guarantee.³ When employees know they’ll have guaranteed retirement income, they’re more likely to stay invested and achieve their goals. In fact, one report from Prudential suggests that people with access to guaranteed income were “2.5 times more likely to stay the course and maintained 38% higher contribution rates than those without guarantees.”

Depending on the plan and its employees, you could use Income America 5ForLife as a QDIA in one of two ways:

1. Pair the existing QDIA with Income America 5ForLife. Consider using the existing QDIA for younger employees and select a default age closer to retirement—say, age 50—for transitioning employees to Income America 5ForLife. Once they reach the specified age, they are automatically moved into the appropriate Income America 5ForLife fund. This method is referred to as a dual QDIA, or DQDIA.
2. Fully convert the QDIA to Income America 5ForLife. Think about making Income America 5ForLife the QDIA for all employees, regardless of age. This may be a good option if the plan population consists of generally more risk-averse employees. Having lived through the 2008 financial crisis, many people are reluctant to invest. However, guaranteed retirement income can be a very strong draw.

It’s easy to implement an Income America 5ForLife QDIA

Here’s how it works in five simple steps:

1. Define goals — Vote to add a guaranteed lifetime income solution to the plan.
2. Update documents — Add a guaranteed lifetime income solution to the Investment Policy Statement.
3. Research options — Issue a request for proposal.
4. Make a decision — Make, document, and communicate the decision.
5. Implement — Proceed with the QDIA implementation process.

¹ 2022 PSCA 64th Annual Survey

² If the joint option is elected, the payout will be lower than 5%, depending on the participant’s age and their spouse’s age. Guarantees are subject to the claims-paying ability of the issuing companies.

³ You may be able to roll over your balance to another retirement plan that offers Income America 5ForLife and retain the income guarantee, or to an IRA or plan that offers an option to retain the income benefit base and payout rate; however, the retirement plan or issuing insurer’s IRA solution may have different investments, fees, and other features. Plan document provisions regarding rollover opportunities also apply.