Five things you (also) need to know about QDIAs
Illustration by Michael Wandelmeir
Asset allocation funds generally, and target-date funds specifically, have proven to be resoundingly popular with plan sponsors and plan participants alike. They are simple in concept (though complex in structure) and administration.
Additionally, since the 2006 passage of the Pension Protection Act and subsequent affirmation in ensuing regulations issued by the Department of Labor, they have been entitled to the protections afforded qualified default investment alternatives (QDIAs) under that legislation (assuming certain conditions are met).
While this month’s Know How is devoted to helping participants better understand this option, it seems a good opportunity to remind you of five things plan sponsors should know about these investments as well:
(1) You do not need to have a QDIA to get 404(c) protection.
(2) You need to pay attention to participant notices.
(3) A QDIA does not have to be a target-date fund.
(4) The fiduciary requirements to monitor and select a QDIA prudently are no less than for any other plan investment option—and they are fiduciary requirements.
(5) Just because a default fund is not a QDIA does not mean it is not a prudent default choice.
As always, I hope you find this material useful—and look forward to your feedback!
Nevin E. Adams