As a result, recent IRS guidance has specifically allowed plan sponsors to include deferred annuities in TDFs (even if the TDF is also a QDIA
) without violating otherwise applicable nondiscrimination rules (relating to age and compensation levels) that impact 401(k) investments.
With TIAA's custom TDFs, participants can transfer the assets invested in the annuity sleeve to another in-plan QDIA
for the first 12 months after the initial investment.
We propose strengthening the current QDIA
rules in two ways, in effect creating an Enhanced QDIA
standard or EQDIA.
Automatic elective contributions and related employer matching contributions are, absent contrary affirmative election, invested in a QDIA
According to the PPA, when participants have an opportunity to direct their own 401(k) investments but fail to do so, fiduciaries may enjoy a 404(c) defense anyway if fund officials invest participants' funds in a QDIA
. The list of QDIAs
includes balanced funds and managed accounts as well as target-date funds, but target-date funds have become by far the most popular employee default, experts say.
The entry point for a typical hybrid QDIA
is from a target-date fund (TDF).
LHP: I understand that the Department of Labor has, in response to a TIAA request for comment, okayed using annuities as a qualified default investment alternative or QDIA
in qualified plan target-date funds.
The client, a financial services firm, selected AB's target-date funds (TDFs) to replace its existing qualified default investment alternative (QDIA
), passive TDFs.
"The vast majority of the assets, from what I've read, are there because the plan sponsor, and actually the plan advisor, has chosen target-date funds" as the qualified default investment alternative (QDIA
) for automatically enrolled participants, he said in an interview.
Where better plans differentiate themselves from good plans is in what comes next: the default contribution rate itself, and the choice of QDIA
. There is no one gold standard for contribution rates, because a corporation with an open defined benefit plan cannot be expected to establish a double-digit default contribution rate for its DC plan.
Despite the negative attention target-date funds received after the downturn, these options are likely to remain the preferred Qualified Default Investment Alternative (QDIA
) for many plan sponsors and acceptance is expected to increase.
Section 624(a) of the Pension Protection Act of 2006 (PPA 2006) provides that a participant of a participant directed individual account pension plan will be deemed to have exercised control over assets in his account if, in the absence of investment directions from the participant, the plan invests in a qualified default investment alternative (QDIA