Most U.S. retirement plans continue to default participants into target date funds that hinge solely on age, a practice that fiduciary Philip Chao argues was never designed around the individual saver. Chao, founder and chief investment officer of Experiential Wealth in Cabin John, Maryland, and founder and CEO of Nexus338, has rolled out a personalized alternative called the Individualized Glide Path Solution, or iGPS, to more than 400 plan sponsors. That adoption, he says, signals that the industry's one-size-fits-all default is due for an overhaul.
The Pension Protection Act of 2006 established the Qualified Default Investment Alternative to shield fiduciaries from liability when they automatically enroll workers into a diversified investment. Since then, target date funds have become the default of choice for nearly every plan that uses one, with trillions of dollars now riding on a fund's glide path—the preset schedule that shifts asset allocation as retirement nears.
“Within a given plan, everyone in the same five-year age band—regardless of income, contribution rate, or account value—is lumped into the same investment assumptions and the same product under a TDF series,” Chao said. “TDFs are built using national average values, solving for the average participant at retirement. But an average, or mean, is simply the sum of all values divided by the size of the population, and it can be pulled sharply up or down by very high or very low numbers. The reality is that almost no one is truly average.”
Managed accounts already offer a personalized alternative, but Chao said adoption has stayed low because of cost—typically 60 to more than 100 basis points on top of underlying investment expense—and a reliance on participant engagement that most workers never provide once they're defaulted into a plan by inertia rather than choice.
Chao said he identified that gap more than a decade ago and built iGPS around three requirements: a cost comparable to a typical target date series, no participant engagement required, and genuine personalization using data plan sponsors already hold, including date of birth, wages, account balance, deferral rate and employer match. “In 2023, after working tirelessly with PIMCO for two years and a fintech company, we launched iGPS—the first personalized target date solution—at an all-in expense of 29 basis points,” Chao said. “We are now able to capture each participant's changing demographic data—age, wages, account value, deferral contribution, and employer contribution—and adjust the portfolio every quarter and rebalance for timely alignment.”
The strategy now manages more than $350 million across close to 500 plans, accessible through recordkeepers connected to the iJoin platform, a Broadridge company. Nexus338 is also building iGPS Lifetime, which will add a personalized allocation to fixed annuities from Pacific Life for participants age 50 and older. This push toward personalization comes as retirement platforms expand their advice workflows to better serve plan participants.
Chao's focus on personalization extends into his new book, “From Save to Safe: A Personalized Journey from Fragility to Resilience,” which argues that most Americans under-save for retirement and that defined contribution plans have concentrated on accumulation while largely ignoring what happens once someone stops contributing. “Even today, most plans do not allow retired employees to receive monthly distributions; the standard plan design and system permit only a complete rollover or a full distribution as a cash out option in nearly all cases,” Chao said. “Longevity risk is the largest unmanaged risk in retirement. Put simply, most people worry that they will spend down all their assets before they die.”
His recommendation: let retirees who leave assets in the plan take periodic distributions without a steep fee on every payout, paired with institutionally priced, in-plan group annuities that let participants convert part of their savings into guaranteed lifetime income, backed by a managed payout option for the remaining, non-insured assets. This decumulation focus is increasingly relevant as workers delay retirement amid inflation, according to a recent Principal survey.
On governance, Chao firmly believes in the vital importance of a retirement plan fiduciary. Upholding the dual duties of loyalty and prudence is not only the requirement under ERISA but it also safeguards trust in the employer-based retirement system. Chao shines a light on plan fiduciaries, asking all to regard their fiduciary status as a leadership position to serve and do their best solely in the interests of those who entrust them with their assets. As retirement fiduciary assets grow, the role of plan sponsors in selecting appropriate defaults becomes even more critical.
