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Two Groups Suggest Changes to QDIA Proposal
The ERISA Industry Committee (ERIC) said in a November
letter
to the Department that the QDIA proposal was
overreaching.
“The sweep of the regulations is quite broad,”
said the group’s president, Mark Ugoretz, in a press
release. “While the most pronounced effect will be on
plans with automatic enrollment features, the regulations
would also affect other circumstances where participants
fail to provide investment direction, including incomplete
enrollment forms, rollovers, removals of investment
options, beneficiary and alternative payee balances,
disputes, and missing persons.”
The group asked the department to be clear that employers
may consider factors other than employees’ ages when
determining which investment options to use, and gives the
example of a firm with high employee turnover that might
want to choose a stable value fund or money market fund to
ensure that employees with short tenures are not caught
losing money in a stock market downturn. The group urged
DoL to make clear that such arrangements are permissible.
ERIC’s letter also urged the department to confirm
that ERISA preempts any state law that would inhibit
plan sponsors from implementing automatic enrollment
features in their plans.
In its letter, the American Bankers Association applauded the Department of Labor’s flexible definition regarding QDIA, which provides relief from liability for fiduciaries who invest participant assets in a certain type of default investment alternatives in the absence of participant investment direction.
The association proposed clarification on the following points:
- The prohibition on imposing financial penalties does not preclude compliance with SEC Rules 22c-2;
- That bank trustees are not precluded from serving as investment managers of a QDIA
- That the 30-day notice requirement would not apply under certain limited circumstances (such as in the case of new hires) where such notice may not be practical; and
- That there is no requirement to provide to QDIA participants investment materials that are not normally provided to non-QDIA participants.
The department released in late September its proposal
for a safe harbor rule that would govern default investment
options that plan sponsors can choose for circumstances in
which employees fail to submit investment options, such as
qualified investment alternatives (QDIAs) – target date
funds, balanced funds, and managed accounts (See
DoL Releases Default Investment Option
Safe Harbor
).The proposal quickly prompted suggestions from the plan
sponsor community (See
Industry Experts Have Ideas for Change on
QDIA Proposal
).
Under the proposal, employers would be protected from
suits about the default investment option’s market
performance, but it stopped short of freeing them for any
litigation stemming from how the specific options were
chosen within the broad categories and how they were later
monitored.