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Qualified Default Investment Alternatives (QDIAs)

Qualified Default Investment Alternatives (QDIAs)

QDIAs

If you have employees who don’t elect investment options for their retirement plan contributions, you may need to use the Qualified Default Investment Alternative (QDIA). As an employer who meets certain requirements, you won’t have fiduciary liability for those employees’ investment outcomes. 

QDIA was created by the Pension Protection Act of 2006 (PPA). A subsequent regulation issued by the Department of Labor (DOL) relieved employers from fiduciary liability for QDIA investment outcomes. The regulations do not, however, relieve fiduciaries of their obligations to prudently select and monitor QDIAs. Failure to fulfill fiduciary responsibilities could result in liability. As an employer, you can avoid liability for QDIA investments if:

  • Your retirement plans allow participants to direct investments
  • Participants invested in QDIA due to their own failure to elect investments

Appropriate Types of QDIAs

If you are a fiduciary responsible for creating a QDIA, keep in mind these  four types of QDIAs are considered appropriate for participants and beneficiaries who fail to direct their investments:

  1. Lifecycle or target date retirement funds — A product with a mix of investments taking into account the individual’s age, retirement date or life expectancy
  2. Professionally managed accounts — An investment service can allocate contributions among existing plan options. The asset mix should account for the individual’s age or retirement date
  3. Balanced funds — A product with a mix of investments, which takes into account characteristics of the employee group rather than each individual
  4. Capital preservation products — This option only exists during employees’ first 120 days of participation. After that, amounts must be transferred to another type of QDIA. This should be the long-term default investment selected by the plan fiduciaries.

Notices to Participants

In order to offer a QDIA, plan sponsors are required to distribute certain communications to participants and beneficiaries. The plan sponsor’s responsibilities include:

  • Providing at least 30 days notice prior to a participant’s retirement plan eligibility or the first QDIA investment.
  • Ensuring the notice is received on or before the date of an employee’s eligibility (if using automatic enrollment). This applies if the participant can receive a distribution of all elective deferrals automatically withheld and contributed within the 90-day period following the initial contribution. (This provision applies only to an Eligible Automatic Contribution Arrangement in effect for a full plan year).
  • Providing notice that contributions will continue to be invested in the QDIA at least 30 days prior to the beginning of each subsequent plan year.
  • Writing notices that include specific information and can be understood by the average participant. 
  • Delivering the same information (i.e., prospectuses) as participants who make their own investment elections.
  • Providing opportunities and instructions for participants and beneficiaries to direct investments out of a QDIA as frequently as participants with other investments (at least quarterly).

Talk to your financial professional to determine if a QDIA would suit your retirement plan.

Note: Provided content is for overview and informational purposes only and is not intended as tax, legal, fiduciary, or investment advice.

Web Content Viewer (JSR 286)

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