Qualified Default Investment Alternatives (QDIAs)
The Pension Protection Act (“PPA”) amended ERISA section 404(c) to provide relief for plan fiduciaries who, in the absence of affirmative investment instructions, invest participant plan assets in a qualified default investment alternative (“QDIA”). The Department of Labor (“DOL”) issued a final regulation implementing this provision that was effective on December 24, 2007.
Under the final regulation, a plan fiduciary who invests the assets of participants who have not given affirmative investment directions in a QDIA will generally not be liable for any investment losses of participants and beneficiaries if the participants are provided with advance notice of the circumstances under which investments in QDIAs will be made, the QDIAs’ investment objectives, and their right to move assets out of the QDIAs.
In order to receive QDIA protection, the plan sponsor is required to:
- Adopt an acceptable QDIA and provide ongoing monitoring of the QDIA
- Provide the initial QDIA notice to existing participants and beneficiaries
- Provide the ongoing initial notice to new employees at least 30 days in advance of a participant’s date of plan eligibility; or first investment in a QDIA; or on or before the date of plan eligibility (if the participant has the opportunity to make a permissible withdrawal as determined under section 414(w) of the Code under an Auto Enroll provision).
- Provide the annual QDIA notice to participants and beneficiaries at least 30 days before the start of each plan year
Under the regulation, QDIAs include:
- lifecycle funds,
- certain balanced funds, and
- certain managed accounts that act like lifecycle funds.
In addition, there is limited QDIA treatment for:
- money market funds for 120 days after the first contribution, provided the plan is an auto-enrollment plan and the amounts defaulted into money market are moved to a QDIA described in the bullets above when the 120-day period expires
- stable value funds for investments made prior to December 24, 2007 (the effective date of the final QDIA regulation)
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