Asset-allocation models and qualified default investment alternatives (
QDIAs) allow plan sponsors to place participants in a plan with a safe harbor.
Alison Cooke MintzerAfter the passage of the Pension Protection Act of 2006 (PPA), there were often comments about how automatic enrollment, automatic escalation and qualified default investment alternatives (
QDIAs) would eliminate the need to engage participants.
In its report "401(k) Plans: Clearer Regulations Could Help Plan Sponsors Choose Investments for Participants," the GAO identified several factors that led the majority of plan sponsors to select target-date funds over other
QDIAs. Several stakeholders the GAO interviewed generally said that plan sponsors look for design simplicity, fiduciary protection and a good fit, given participant characteristics, when selecting a default investment.
First, determine whether the managed accounts will be used as qualified default investment alternatives (
QDIAs) for participants who do not direct their investments.
Balanced funds, including target-risk funds, were granted status as qualified default investment alternatives (
QDIAs).
The study reveals 94% of plan sponsors recognize the success of automatic features, including auto-enrollment, auto-escalation and qualified default investment alternatives (
QDIAs), in addressing their plan-related goals, and say these features drive higher participation and deferral rates along with better investment performance.
Published as IRS Notice 2014-66, the guidance enables plan sponsors to include deferred income annuities in target-date funds (TDFs) that are used as qualified default investment alternatives (
QDIAs) in a manner that complies with plan qualification rules.
Safe-harbor
QDIAs can be given a name and an outcome when associated with a specific investment and client example.
October: Treasury, IRS, DOL Provide Guidance About Annuities in 401(k) Plans,
QDIAsIn recent weeks, I've had occasion to think back on the past five years and all that has transpired: the Pension Protection Act,
QDIAs, the back-and-forth on fiduciary advisers, the first wave (and subsequent flurry) of revenue-sharing lawsuits, the growing emphasis on transparency and disclosure, the growth of -- and questions about -- target-date funds, the "normalization" of a fiduciary role for retirement plan advisers, and, more recently, the back-and-forth on an expanded fiduciary definition.
Similarly, the PPA authorized the DOL to create a fiduciary safe harbor for qualified default investment alternatives (
QDIAs).
Summary paragraph: Five things that confuse employers about
QDIAs