QDIA

The QDIA, or Qualified Default Investment Alternative, was a term introduced in the Pension Protection Act of 2006 to describe some specific parameters around a special type of default option that, if those conditions were met, offered plan fiduciaries additional protections.  Generally speaking, a QDIA must be:

• A product, such as a lifecycle fund, with a mix of investments that takes into account the individual’s age or retirement date;
• A professionally managed account service that allocates contributions among existing plan options to provide an asset mix that takes into account the individual’s age or retirement date;
• A product with a mix of investments that takes into account the characteristics of the group of employees of the employer as a whole, rather than each individual, such as a balanced fund.

In describing the protections associated with the use of a QDIA, the Department of Labor says, “A fiduciary of a plan that complies with this final regulation will not be liable for any loss, or by reason of any breach, that occurs as a result of such investments.”

However, the DoL also cautions that plan fiduciaries remain responsible for the prudent selection and monitoring of the qualified default investment alternative, and that the “selection of a particular qualified default investment alternative… is a fiduciary act and, therefore, ERISA obligates fiduciaries to act prudently and solely in the interest of the plan’s participants and beneficiaries.”  Moreover, that “[a]s with other investment alternatives made available under the plan, fiduciaries must carefully consider investment fees and expenses when choosing a qualified default investment alternative.”