Qualified Default Investment Alternative

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Qualified Default Investment Alternative

An investment vehicle a fund manager may use for retirement plan contributions in the absence of direction from the plan participant. A qualified default investment alternative must be diversified, may not directly consist of securities in the company for which the plan participant works, and may not penalize the participant for early withdrawal. Qualified default investment alternatives were defined in the Pension Protection Act of 2006 as part of a broader effort to ease automatic enrollment in retirement plans.
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References in periodicals archive ?
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, QDIAs
In 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