Qualified Default Investment Alternative (QDIA)

Rules for Implementing a QDIA

In order to qualify for QDIA safe harbor protection under the PPA, the following conditions must be satisfied:

• Participants and beneficiaries must have had the opportunity to direct the investment of the assets in their accounts.
• Participant assets must be invested in a “Qualified Default Investment Alternative,” as defined by the DOL.
• Participants and beneficiaries must have the opportunity to direct investments out of a QDIA as frequently as from other plan investments, but not less frequently than
  once per quarter.

What Are Default Investments?

Default investments are investment options provided by plan sponsors to receive contributions from participants who are given the opportunity to direct the investment of their plan accounts, but fail to make an affirmative investment choice. Default investments are available for automatic enrollment programs, as well as when participants fail to choose investments in situations such as a plan merger or transfer, elimination of an investment alternative or the replacement of a service provider.

• For the 90-day period starting with the date of the participant’s first defaulted investment, the regulation prohibits any restrictions, fees or expenses to be imposed on transfers out of the QDIA. Sales loads, surrender charges, liquidation or exchange fees, redemption fees and market value adjustments are not permissible for transfers from a QDIA during this 90-day period.
• Material provided to the plan about default investments must be provided to the QDIA participant. The information should be the same as that provided to participants who affirmatively directed their account into the investment serving as a QDIA.
• A plan must offer a “broad range of investment alternatives,” as defined in regulations under ERISA Section 404(c).
• Employees must be given initial and annual notice about the QDIA.

Types of QDIAs

The final regulations generally define a QDIA as an investment fund, product or model portfolio that “applies generally accepted investment theories, is diversified so as to minimize
the risk of large losses, and that is designed to provide varying degrees of long-term appreciation and capital preservation through a mix of equity and fi xed income exposures.”
The intent is to ensure that the chosen QDIA is, on its own, capable of meeting an employee’s long-term retirement savings needs.