Final rules from the Department of Labor specify how contributions may be directed to qualified default investment alternatives.
As part of the Pension Protection Act of 2006, sponsors of defined contribution plans may direct contributions from participants who do not make an investment choice to QDIAs.
A participant, however, may fail to make an investment decision and need a default investment under a variety of conditions, reports The Segal Company. For example, if a plan features auto-enrollment, the new contributions will need to invested somewhere by default.
The additional financial relief that comes from using QDIAs applies if six conditions are met:
- Assets must be invested in one of three types of investments that DOL has determined are QDIAs, including lifecycle funds, targetdate funds, balanced funds and managed accounts.
- The participant or beneficiary must have had the opportunity to direct the investment, but did not do so.
- The participant must be given a notice explaining the circumstances under which assets in his account may be invested in a QDIA.
- The trustees must provide the participant with material relating to the QDIA investment.
- A participant must be permitted to transfer assets under QDIA to another investment alternative provided under the plan.
- A broad range of investment alternatives to the QDIA must be made available.
Using a QDIA gives trustees a little extra fiduciary protection, Segal notes.
Related EBN coverage:
|
