401k Propsecting Model....

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M P R's picture
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Joined: 2008-02-27

All,
I've started to do some 401k business (really by accident) and have found I like it (at least so far).
 
I'm still new enough where I have to aggressively cold call, so I pick through Larkspur, find plans with plan YE in the next few months and give them a call.
 
It seems like something I could standardize and work aggressively - then network up and nab the business owner's $. 
 
QUESTION:  Does anyone have a consistent, repeatable model for pushing these through the pipeline? 
 
QUESTION:  What are your favorite vendors?
 
Thanks,
 
M P R

deekay's picture
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Joined: 2007-05-15

If you are still new, I wouldn't bother prospecting 401ks unless it falls in your lap.  Why?  The big, profitable ones can take well over a year to land.  The small and start up plans will ensure you will starve and fail out of the business.

Broker24's picture
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Joined: 2006-10-12

MPR, these are tough to prospect, and even tougher to land. My suggestion? Focus on prospecting business owners for their personal stuff, then mine them once they are clients for their business accounts. Once you have an established practice (aka "steady income"), you can devote more time to prospecting 401K's. Right now, devote maybe one morning per week to making some calls. Much more than that, and you will starve. Why? It will take you talking to 20-30 businesses before one even agrees to an appointment. Then, it may be a startup plan (no money), and even if it's a takeover, it may not pay a ton to move the money. AND the lead time might be 3-6 months to get it implemented (or longer).

anonymous's picture
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Joined: 2005-09-29

Listen to Deekay and to Broker24.  If you want 401(k) business, go after business owners on a personal level.   If you do this, you will always have a legitimate opportunity for the 401(k) business.

troll's picture
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Joined: 2004-11-29

The other side to this is that you can call on 401k's and end up having a conversation with the business owner or CFO about their personal assets.

DodgerDraftpick's picture
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Joined: 2006-12-24

MPR if  you really want to do the 401 (k) thing your best bet is to pick a niche and just focus on plans in that size range.  Since your just starting out 2 million and under is probably the best way to go and avoid startups unless a friend requests it.  The main issue that your going to have is that there are some very experienced advisors who do this as either all or most of their business and your base knowledge won't be enough for you to seriously compete on any plan say 5  million and bigger.  I'm not trying to bash you  I'm just being realistic unless you can respond to me and tell me what provider you could use that can clean Fidelity direct or Schwab's clock and make a client go with you over them.  That is the size where those providers lurk and at 10 million it's a given they will be in the picture.  You should continue to get personal money as an average 6-12 months close from cold call to ink on the paper is very common.  Also the bigger the plan the longer it will take so you can extend that by another 12 months almost automaticlly with larger plans since they have investment committees and boards to make decisions dealing with benefits.   As for favorite vendors that really depends on the wholesaler and I am sure twenty different reps could have twenty different opinions about what provider is best.  I would simply contact the internal for some well known 401 K providers and have the external take you to lunch so you can learn about their product.  Tell them you will be doing a lot of 401 K business  and want to know why you should use them.  I could tell you the lowdown on two dozen providers but you aren't going to learn anything by that.  So you get to do what others have done before you hustle and figure it out on your own.  You can also search previous 401 K forums for specific names of vendors.

Financiallady's picture
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Joined: 2008-04-07

So hypothetically, if you were to try to pursue 401K business under 5 million dollars, lets say you focus on plans that have under 15 employees and over 1 million in assets, would this have as long of a close time? Does anyone have good suggestions for what works if you are cold-calling these plans? 

DodgerDraftpick's picture
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Joined: 2006-12-24

I think that you both are missing the point which is this "IF YOU REALLY WANT TO GO AFTER THIS BUSINESS MAKE SURE YOU HAVE RECURRING REVENUE TO SUSTAIN YOURSELF!!!!  Or I will put it this way go after this business only and be prepared to not close one for 14 months and be ready to eat two meals a day.  It is truly going to take that long to learn the ins and outs  and be competent enough to close this business.  There is nothing wrong with wanting to get involved in this market as the business is very very  sticky these plans aren't moving every year more like every five.  But if you are at a wire they are going to want to see production out the gate and that is not gonna happen with qualified retirement plans.  Ideally you want to build your book learn a lot about the different providers and then go independent because at a wirehouse the gird you are on is going to make this business not very appealing.  Also plans that are $500,000 can take as long as $6 million the timing just has to be right.  As for specific employees that is stictly gonig to be something you will need to find out on your own.   I will say that being indepedent makes a big difference in this business as a lot of wires don't have selling agreements with al of the providers out there.

anonymous's picture
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Joined: 2005-09-29

So hypothetically, if you were to try to pursue 401K business under 5 million dollars, lets say you focus on plans that have under 15 employees and over 1 million in assets, would this have as long of a close time? Does anyone have good suggestions for what works if you are cold-calling these plans? 

 
Hypothetically, if you pursure these plans directly, you are going to hypothetically starve.    The close time could be just as long.  The competition just won't be as fierce.   This is a relationship business.  I can't envision how cold-calling these plans can be a worthwhile use of time. 
 
Please notice that I am not telling you not to pursue this business.   Go ahead and pursue it hard, but not on a cold-call basis.   Look at your calendar for this upcoming week.  Is it full?  If not, you've got bigger issues than how to land 401(k) plans.  Do some quick homework before each of these appointments.  Find out the name of the CEO/Business owner along with one or two of the other top people.   Use this knowledge to get easy referrals to these people.
 
Ex. Your 1st appt on Monday is a quick meeting with Joe Smith.  Joe works for ABC Lumber Company as a sales manager.  Peter Jones is the CEO and Mike Walters is the CFO.
 
MPR: "Later this week, I will be calling Peter Jones and Mike Walters. How well do you know them?"
 
Prospect: "I've known them since I started here 5 years ago.  They're both real good guys."
 
MPR: "When I call them, do you mind if I tell them that we spoke an you spoke highly of them?"
 
Prospect:  "Sure"
 
You've just accomplished getting 2 referrals to people who have 401(k) influence.   You've also just increased your chance to do business with the prospect since he sees the type of people you typically call are at a level above his.
 
Even with the referral, I think that it is a mistake to call specifically for 401(k) business.   Call to get an appointment.  If you can have a relationship, your chances of getting the business increase by a factor of 10.   If you can get one person with decision making influence as a client, you will a chance at the 401(k) business. 
 

Akkula's picture
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Joined: 2008-02-17

Here are my observations from being in the 401k business based on dealing with hundreds of plan sponsors, brokers, auditors, TPAs, etc.
 
* If you have no knowledge of 401k plans, you still know more half the brokers that sell 401k plans to $1-5 million dollar plans. 
 
* You can negotiate higher commissions up front but the plan could have a termination fee for a period of years so the recordkeeper gets their money back that they front to you.
 
* When you cold call, perhaps you want to mention the Larue (sp?) case where plan sponsors can sue their plan sponsor.  Another excellent topic of discussion is 404(c) compliance.  This protects plan sponsors from being sued for individual participant investement losses if they do certain things.  Most brokers and plan sponsor have no idea about what you are talking about AND THEY SHOULD!  This creates a need and get you in the door if you know your stuff because I guarantee most people selling these plans don't discuss much or have a comfort level with it.  I have noticed that most brokers tend to talk about fund performance issues.  This is such a small part of the whole big picture in 401k but brokers discuss these topics because that is what they are used to.
 
*Familiarize yourself with the new Pension Protection Act Regulations.  There are new versions of safe harbor plans where plans can automatically pass their discrimination testing if they make a certain employer contribution.  FURTHERMORE THE PPA ACTUALLY ENCOURAGES BROKERS TO GIVE PARTICIPANT ADICE AND THEY CAN CHARGE A FEE FOR THIS ADVICE WITHOUT MAKING IT A PROHIBITED TRANSACTION.  If you sell a plan you have access to all the participants who need education and advice (or know someone else who needs it).  You have warm leads right there that can pay off.   
 
*Get to know some of the basics of what employee demographics make plans fail their compliance tests and be able to suggest alternative plan designs.  You don't have to be a TPA but you should try to have some knowledge of the big picture. 
 
*Get to know something about non-qualified deferred compensation plans.  Sometimes they can be used in conjunction with a qualified plan to allow highly comensated employees to shelter more money from taxes.  They are a bit less "safe" and a bit more "restrictive" in some respects but they can be worthwhile for highly compensated employees under certain situations.
 
Here are some resources I would suggest:
 
www.plansponsor.com This has a ton of good reading that will give you good fodder for discussions with plans and also lists information about different providers.
www.401khelpcenter.com Good general resource and explainations about general plan features and compliance questions
www.asppa.org If you want to get serious about selling these plans and you don't have any background go to this site and take the "RPF-1 & RPF-2: Retirement Plan Fundamentals Parts 1&2" exams.  They are the base for other additional knowledge about the industry and they are self study with and opend book test and shouldn't take too long. 
 
Books:
401k Sales Champion
To Sell or Not to Sell Employer Retirement Plans
 
If you are really interested in selling 401k plans, PM me.  It would be good to exchange some ideas.    

troll's picture
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Joined: 2004-11-29

Or you could cold call about 500 people in the time it will take you to do the above research.  Time spent like this will get you out of the business.

Akkula's picture
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Joined: 2008-02-17

Primo wrote:Or you could cold call about 500 people in the time it will take you to do the above research.  Time spent like this will get you out of the business.
Perhaps you are right.  If fewer brokers have the knowledge/desire/willingness to become savvy in the 401k business, there will be much less competition from competent professionals competing for plans.  Sounds good to me! 
Barriers to entry in a market ususally cause the market to have fewer suppliers.  Since other products require less skill and knowledge to sell, you are more likely to get a more perfectly competetive market with more brokers out there selling them. 
 
Some people think getting a CFP is a waste of time.  I guess it just depends on your business and the type of clients you want to attract/service.  
 
I would probably say you should probably still make 500 calls AND take the time to hone your professional skills during off business hours.  

troll's picture
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Joined: 2004-11-29

You are right Akkula, you got me.  There is virtually no competition for desirable 401k plans (>$5mm).  This is not a well known fact.  They tell you the day you graduate from training.  I am forced to only use the simple products that require less skill to sell, you know stuff like futures and options.  OP, unless (and that is a big unless) you have a natural market (you know of 401k plans that want change) that are willing to move NOW (highly unlikely) you are increasing your chances of failure if you are new.  And this business has a very high failure rate to begin with.  BTW, just because you worked in a back office Akkula, you do not know this business.  Just like seeing your dog give birth to puppies does not make you a gynecologist.

anonymous's picture
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Joined: 2005-09-29

Akula,
 
One of the things that I tell my clients on a regular basis is "I don't know".  I pride myself on not giving out wrong information.  It's a skill that you may want to learn.  You don't have the knowledge to be giving out advice on selling 401(k) plans.  Not only have you never sold one, but you have never even made the initial cold call. 
 
Knowledge can be purchased.  Time is of the essence if one is to survive in this business.   Every minute that a new person spends pursuing 401(k) plans puts them 1 minute closer to failing out of this business.  If a 401(k) opportunity (or any area in which someone doesn't have expertise) exists, manage the relationship.  Bring in an expert.  Let them spend the time and do the work and split the commission with them.

Akkula's picture
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Joined: 2008-02-17

I would be interested to know how many 401k plans everyone telling this person not to pursue selling them have sold and gone after that aren't already tied to other assets you already control.  This forum seems to be exclusively devoted to encouraging people to go after IRA/401k rollovers and gathering assets from individuals.  There are a million brokers doing the same thing and chasing the same assets.
 
With a few exceptions, many (NOT everyone) of the posts by the "experts" on this board are filled with bombast, philosphical questions, bragging, etc., but little content.  When I hire an expert to assist me with something (like the airline pilot I just hired to take me on a trip) I hope to get someone who is competent in their field, not just "salesy." 
That said, you can't be an expert on everything, and it is okay to work with experts.  Focusing on one niche is probably not smart but I do know brokers who are making $50+ thousand dollars per year on one large plan that they have sold. 

Broker24's picture
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Joined: 2006-10-12

I have to say, much of what Akkula says is correct.  And I don't think he is suggesting you abandon all other forms of business prospecting to go after 401K's.  The truth is, if you want 401K business to "fall in your lap", you need to be well educated on how they work.  I thought I knew how they worked, until I had a mentor show me the ropes.  With some education, you can make quite a few more plans "fall in your lap", by simply knowing which buttons to push with business owners (various fees/expenses, lack of service, lack of investment choices, etc.).  Most don't give a dink about the compliance side, until you start mentioning fiduciary liability.
Honestly, I think Akkula has some good advice, and since someone started this thread by asking for feedback, I think people should at least give his comments some merit. 
And FYI, he said "these are my OBSERVATIONS".  He made no mention of being a 401K prospecting king.

DodgerDraftpick's picture
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Joined: 2006-12-24

Akkula has some very good points related to the 401 (k) market.  The point that the other advisors are trying to make is that it might not be  good to have a plan and goal to focus on this business so early on.  You need to understand that you have to be bringing in other business because while it would be great to land a $50 million dollar plan charge 10 bps and have a sticky plan that won't move for a decade you can waste a lot of time elephant hunting.  Look at this way getting that type of plan is very similary to going after an individual client with say $5-7 million  account size.  You as a new advisor will face very stiff competition for that client.  Even with a relationship and a plan to put it in managed money you will not  be a lock for that business.  Now imagine that only some of your competition is showing something where you the advisor aren't in the picture.  Think Vanguard, Schwab, Fidelity, and T. Rowe Price.  For every advisor that gets a large plan like that they have probably made it to the finals on ten that size.  They also are very sophisticated and experienced and know several dozen providers inside out.  You need to master the ability to get smaller plans before you step up to the big leagues.  Think of yourself as a minor leaguer once you have mastered single A  you go to double A.  Right now you want to face Johan Santana in the World Series with the game on the line.  Translation you aren't there yet so instead of frustrating yourself learn about the business, bring in smaller plans and when you think your ready take a crack at some small plans $5-10 million see how that goes and then progress from there.  Just my two cents from someone who does a lot of this business and found with a good client base in place life is much easier to focus on 401 K.

Akkula's picture
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Joined: 2008-02-17

$5-7 million dollar 401k plans are probably more realistic for most advisors to target (or even smaller).  There are a lot more of them out there.  Going after plans that are over $20 million will be nearly impossible to land even for the top advisors since many of them deal directly with vendors.
I will tell you though, that plans who have advisors still seem to get better service from their vendors.  Vendors can take plans for granted unless a broker is acting as an advocate for the plan.  This is the value that brokers have...strong arming the vendors into giving more/better/additional services to the clients.  I hate to say it, but it is true. 
The one other thing that I would say about 401k plans over mutual funds is you can compete more over service than price/expense ratios/etc.  I think it is really a whole lot easier to justify higher fees in this market because of all the moving parts that you need to coordinate. Servicing 401ks seems to be less of a commodity than some other products.

troll's picture
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Joined: 2004-11-29

My point is actively prospecting for 401k plans can be all or nothing.  Knowing your trade is always a good idea.  The reason that brokers go for ira/401k rollovers is that this method will increase your odds of making it in this business.  When you are new to the business, your biggest obstacle is making it to year 5.  If you can accomplish this with 401k plans, more power to you.  But this has been tried before and the posters on this board are simply sharing their experiences.

anonymous's picture
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Joined: 2005-09-29


Akkula, let me start by apologizing to you because it probably feels like I'm looking for reasons to attack your posts.  Please don't take it that way.  I'm only trying to be helpful.
 
Your background in 401(k) plans is something that will definitely be of help to you.  The big issue that we must keep in mind is that one must survive before they can thrive.  One can absolutely thrive having 401(k) plans as a major part of their practice.  The problem is that going after these plans in the beginning will increase their chance of failing out of the business despite the fact that these can result in substantial payouts.  Capturing a 401(k) that will ultimately move the assets in the 19th month of the 18 month training program won't do most new brokers any good.
 
"I would be interested to know how many 401k plans everyone telling this person not to pursue selling them have sold and gone after that aren't already tied to other assets you already control."
 
The answer for me is zero.  We get no points for degree of difficulty in this business.  We are in a relationship business.   Experience has taught me that it doesn't make a whole lot of sense to go after 401(k) business when I don't have a relationship.  By default, if you go after a 401(k) plan cold, you already have 3 strikes against you.  Strike 1: The plan has an existing broker.  Strike 2: The decision makers have personal advisors who will get a chance at the business.  Strike 3: Because it's cold, there is no trust.    If the decison maker is a personal client, two of the strikes are eliminated.  I will tell you that I've gotten the 401(k) at the same time that the decision maker became my personal client, but never before. 
 
"This forum seems to be exclusively devoted to encouraging people to go after IRA/401k rollovers and gathering assets from individuals.  There are a million brokers doing the same thing and chasing the same assets."
 
I do not do this.  I'm a fact finder kind of guy.  I don't go after any particular business.  I know that if I'm talking to the right people, the business will come.   "What are your financial concerns?"
 
With a few exceptions, many (NOT everyone) of the posts by the "experts" on this board are filled with bombast, philosphical questions, bragging, etc., but little content.  When I hire an expert to assist me with something (like the airline pilot I just hired to take me on a trip) I hope to get someone who is competent in their field, not just "salesy." 
 
In our field, competence shouldn't be confused with knowledge.  We don't get paid to be the smartest guy.  In general, we get paid to get people to take action.  The most competent advisor is the one who can get people to take the actions that they need to take.  There are so many areas in which most of don't have expertise.  However, what most us veterans do know is how to make money in this field.  Even those of us who are not experts in 401(k)'s, have the expertise to know that a rookie calling on 401(k) plans is a bad idea. 
 
Nobody is saying to ignore them.  In fact, every time that a broker is talking to a decision maker, they should ask some questions to try to get their foot in the door with this business.  The only difference is that a new person should be the door opener for a more experienced person.  Let the experienced person do the work and spend the time in exchange for an equitable split.  The new guy can then go back to the business of trying to survive.
 
 
That said, you can't be an expert on everything, and it is okay to work with experts.  Focusing on one niche is probably not smart but I do know brokers who are making $50+ thousand dollars per year on one large plan that they have sold. 
 
Actually, going after just one niche can be very smart.  It just takes time, so it can't be done in the beginning.  You're absolutely correct that we can't be experts in everything.  That shouldn't stop us from being profitable in areas in which we don't have a lot of knowledge.  I have very little knowledge in group health insurance and no desire to spend time doing it.  Yet, I'll ultimately have a fairly substantial group health business.  All that I do is introduce the decision maker to my group health expert.
 
 
 
 

Akkula's picture
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Joined: 2008-02-17

anonymous wrote:
Akkula, let me start by apologizing to you because it probably feels like I'm looking for reasons to attack your posts.  Please don't take it that way.  I'm only trying to be helpful.
 
Thanks for the apology and I am glad you got that impression as well. 
 
MPR didn't really seem like he was asking if he should pursue 401k plans, he asked about favorite vendors and potential strategies.  If he/she has made the decision to move forward with that niche, great!  Many of the posts regarding topic are of value to many other posters on this board as well judging by the number of PMs I have received. 
 
Get off the soap box, put in your $0.02, and stop being the "wet blanket" on threads that kills discussions and causes a lot of people to avoid posting for fear they will be attacked.
 
The advice you give for noobs is very valuable but try not to beat it to death.  The one thing I have notice about this forum is there is a lack of quality content and threads like this one.  The silly back and forth and baiting and trolling on this forum will hopefully cease at some point so it can be more of the resource it was intended to be. 

anonymous's picture
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Joined: 2005-09-29

Akkula,   You get attacked because you have a secretarial type position and have never sold, yet you try to give advice.    I can't imagine that there is anyone here who is worried about me attacking them. 

Akkula's picture
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Joined: 2008-02-17

Anyhow, to get back on topic, another recent topic of discussion are the qualified default investment alternatives (QDIA).  Do a google search on these.  Many prospects you talk to probably haven't selected one and it affords them additional protections under the PPA.  Basically anyone who has their investment allocations defaulted because they were automatically enrolled or received a profit sharing or for some reason didn't select their investments are put into a default fund.  It used to be that fiduciaries could be liable for losses in the default fund so many chose a stable value option so no money would be lost.  This has now changed and plans should be selecting a more appropriate default fund for the demographics of their plan, like a blanced fund, or an age based default fund that is determined by the age of the participant.  This is a new, hot issue that many smaller plans have not been made aware of.
 
If you rely on your vendor or another third party expert to bring these types of nuggets to you, that may not happen.  Remember to change default funds causes them to do more work and they don't really benefit much from it as far as new revenue goes.  So, they may not be beating down the door to tell you about these issues.   That is one reason to keep abreast of some of these hot button issue independently.  The websites I mentioned previously are helpful for news on these issues.
 
Here are the answers to some of the other questions people have asked me in PMs:
 
* It doesn't matter when the plan year ends for the plan.  You can convert the plan to a new vendor in the middle of the plan year.  Since most plans are 12/31 plan year end, it is usually better to convert them during off plan year since the vendor is usually less busy during the summer.
 
* You can usually become the broker of record on a plan without moving the plan to a different vendor.  If you become the broker of record on the plan at the existing recordkeeper, you don't have to actually move the plan in order to get paid because you can take over the commission structure of the plan.  All you normally need to do is sign a disclosure statement and a commission agreement with the existing vendor and the plan.  If you decide to change vendors from here, you can still get paid from the existing vendor until you move the plan.  This should decrease the lead time significantly that scare off many people from 401k plans. 

anonymous's picture
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Joined: 2005-09-29

Akkula, good info.  Thanks.
Let me give you my opinion on why a stable value fund should be the default.  I understand that a balanced fund or an age-based fund over time should give better results.  However, these are people who are being defaulted into a plan.  Someone should never be defaulted into something than can cause them to lose money.  These are typically non-investors.  A non-investor who is defaulted and loses money will quickly go back to being a non-investor.
 
Akkula, it's this kind of knowledge that you posted that can make you a valuable asset to the board.

Akkula's picture
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Joined: 2008-02-17

QDIA may be one of the following according to the DOL website:
 
http://www.dol.gov/ebsa/newsroom/fsdefaultoptionproposalrevision.html
 
"A QDIA may be:



  • Life-cycle or targeted-retirement-date fund;

  • Balanced fund; or

  • Professionally managed account."

The reason the law recently recognized the QDIA because too many people, particularly younger investors, were being defaulted into a stable value fund which is not an appropriate vehicle for long term growth.  Target date funds where you get defaulted to the appropriate fund based on your date of birth in the recordkeeping system or a professionally managed account is actually the best alternative in my opinion based on the above options because they take into account some degree or the participant's characteristics.  The balanced fund option is the easiest to implement because it is only one fund instead multiple funds that would be necessary with the other options.

Generally speaking, people shouldn't be defaulted at all.  They should actually choose their own investments when they enroll.  Commonly, people who get defaulted are people who get some kind of non-elective employer contribution, like profit sharing.  Profit sharing is different from match because match requires a employee contribution in order to get an employer contribution.  Typically, somone will have selected investment allocations when they are getting match but may not when they get profit sharing since they don't have to defer to get a profit sharing contribution.
 
Furthermore, the QDIA has become more important because of the new automatic enrollment emphasis in the PPA.  If you are going to automatically enroll participants in your plan, you need to make sure they are invested in an appropriate investment for their stage in life. 
 
Regardless of the how you feel about the best investment options, the DOL and congress has defined what a QDIA is and what it means to fiduciaries (additional protection against getting sued for investment losses). 

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