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Stadion Wants to Make Small 401(k)s More Customizable

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One-size-fits-all retirement plans, like target-date funds, may be failing investors.

“All 35-year-olds aren’t paid the same, so why should they be invested the same?” asked Brad Thompson, chief investment officer at Stadion Money Management. “The problem with target dates is they’re still kind of a ‘one size, fits all.’ And, again, not all 35-year-olds are the same. They have different risk tolerances. So one glide path might not be the right glide path.”

Stadion wants to offer all those glide paths to investors.

“If you look at the river of potential of glide path offerings, right now most plan sponsors are forced to select one,” Thompson said during a visit to ThinkAdvisor’s New York office. “We want to give them the option to say, ‘Let’s select the universe of those and give [our] employees the opportunity to be in the most appropriate glide path for them.’”

To do this, Stadion has developed a small-business retirement planning solution called StoryLine.

The customizable managed account solution use exchange-traded funds to offer 426 different portfolio allocations and glide paths that can be tailored at the company level and then further refined for individual employees.

While this has become a trend among large plans, customizable retirement plans are something largely unseen in the among the micro- and small-plan markets.

“Traditionally, that type of advice and customization has been available really to just the largest plans,” Thompson said. “What we want to do is bring this down to the small marketplace.”

StoryLine will launch in the first quarter of 2016 and already has some major vendor partners lined up.

(Thompson stayed tight-lipped on who those vendors were.)

“The issue that we’ve found is that right now the small market for the 401(k) space is ignored,” Thompson told ThinkAdvisor. “It’s just an ignored marketplace. And so traditionally advice hasn’t been provided, education has been weaker in the small market plan.”

Thompson described who would fall into these small market plans – or as Thompson calls them “Main Street 401(k)s” – as “a doctor’s office that has three or four physicians in it and maybe eight nurses and an office management team” or “an architecture firm that has three partners and a staff that supports them.”

“If you think about the Americans saving for retirement, that incorporates a lot of Americans,” Thompson said. “But it’s the least served market out there right now … What that tells me is that there’s an awful lot of Americans out there that are investing for their retirement without proper advice, without the proper vehicles and probably not even the most appropriate vehicles available to them.”

While Stadion offers 426 different glide paths within StoryLine, the firm found a cost-effective way to do so.

“That’s a tremendous number of allocations to manage and in order to do that efficiently we created what we call a component (collective investment trusts) that make up the allocations within all 426 of those allocations,” Thompson explained. “What we’ve done is we say we can manage each of these components individually to what we want them to do, and they each have their own index-based benchmarks. And then we structure the allocations based on where that person is in their retirement, which glide path they’re on to automatically generate the allocation to each one of those six components.”

By doing this, StoryLine’s additional customization has no additional cost over and above Stadion’s managed accounts as they’re offered today.

— Check out Bottom Line: Is Financial Planning Really the Key to Reaching Client Goals? on ThinkAdvisor.