Department of Labor Issues Proposed Regulations on QDIA Disclosures for Lifecycle Funds
On November 30, 2010, the Department of Labor (“DOL”) published proposed regulations (PDF) that would affect ERISA retirement plans that use “target date” or “lifecycle” funds (“lifecycle funds”) as a qualified default investment alternative (QDIA) for participants who fail to make an investment choice or provide complete investment instructions.
The proposed regulations would amend:
- the notice provisions of the QDIA regulation, to include enhanced disclosure requirements for all QDIAs and specific requirements relating to lifecycle funds; and
- the DOL’s recently published Final Participant Disclosure Regulations, to include specific disclosure requirements in relation to lifecycle funds that parallel those that would be required for QDIA notices.
Comments are due by January 14, 2011. The regulations are intended to be effective 90 days after they are finalized.
EFFECT ON QDIA NOTICE REQUIREMENTS
The QDIA regulation (PDF) relieves ERISA retirement plan fiduciaries from liability for losses if they invest the assets of participants who fail to make investment choices or provide complete investment instructions in a properly chosen and administered QDIA. Investments that qualify as QDIAs include lifecycle or target date retirement funds, balanced funds or managed accounts. Part of the regulatory requirements for a QDIA is that the plan provides initial and annual notices to participants containing investment information for a QDIA under the plan. The proposed regulations would require additional information to be included in these notices for all QDIAs and further require enhanced disclosures for lifecycle funds used as QDIAs. They would also require plan sponsors to explain where participants/beneficiaries can get further information on the QDIA, as well as other investments available under the plan.
How TIAA-CREF helps
We will provide ongoing updates and will advise you when the final regulations are issued. Once the regulations are finalized, we will update our sample initial notice, annual notice and QDIA fact sheet to comply with the new requirements and will make them available on the plan sponsor website to be accessed by all affected plans.
EFFECT ON THE FINAL PARTICIPANT DISCLOSURE REGULATIONS
The Final Participant Disclosure Regulations apply to plan years beginning on or after November 1, 2011, and require plan sponsors to provide participants with:
- General information on the administrative fees and expenses that plan providers charge, and specific information on the actual charges to their accounts, and
- Comprehensive data about plans’ investment options, including historical performance, comparable benchmark performance, expense charges and investment restrictions—all in a chart or similar format that allows participants to make a “meaningful” comparison of their choices.
The Final Regulations already contain informational requirements for all QDIAs that are similar to those that the proposed regulations would impose, but plan sponsors would also have to include additional information that would be specific to lifecycle fund QDIAs, and incorporate the additional lifecycle fund disclosures as an appendix to the required comparative chart.
How TIAA-CREF helps
TIAA-CREF already provides much of the required information to participants, and we are reviewing the regulations to determine the additional steps that will help our plan sponsor clients to comply with them by the effective date.
If you have questions about the proposed regulations, please contact your Managing Consultant or the Administrator Telephone Center at 888 842-7782.
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