Benefits & ERISA Law

DOL Issues Guidance on Qualified Default Investment Alternatives

By Suzanne Wynn

The Dept. of Labor has issued 3 pieces of guidance on qualified default investment alternatives (QDIAs) - a 2-page correcting amendment for Default Investment Alternatives Under Participant Directed Individual Account Plans, a 2-page Fact Sheet, and Field Assistance Bulletin No. 2008-03, which is 12 pages long.

Section 624(a) of the Pension Protection Act added ERISA section 404(c)(5)(A). It addressed how the plan should invest a participant’s account balance when the participant has failed to provide investment instructions to the plan administrator or plan sponsor. On October 24, 2007, the DOL issued final regulations for ERISA section 404(c)(5) providing that a fiduciary of a plan that complies with the final regulation is not liable for any loss, or by reason of any breach, that occurs as a result of investment in a qualified default investment alternative. The final regulation also described types of investments which qualifies as default investment alternatives. The correcting amendment is effective on April 30, 2008, and applies on or after December 24, 2007.

This correcting amendment to those final regulations address 3 issues. First, a correction is made to the “round-trip” restriction contained in the final regulation. The DOL states that the original “round-trip” restriction was too broad and should not have been included as an example of an impermissible restriction. “Round-trip” restrictions affect a participant’s ability to reinvest in the QDIA for a limited period of time. Second, the DOL is clarifying that a committee comprised primarily of employees of the plan sponsor can manage a QDIA when the plan document names that committee as a named fiduciary. Finally, DOL is changing the final regulation to provide that stable value products or funds must investment primarily in investment products that are backed by state or federally regulated financial institutions, or the principal and accrued interest on the investment products may be backed by contracts issued by such institutions.

Field Assistance Bulletin 2008-03 is written in a Q&A format, addressing issues such as the scope of the QDIA final regulations, the notice requirements, the 90-day limitatino on fees and restrictions, QDIA management and asset allocation, 120-day capital preservation QDIA, and grandfather-type relief for stable value funds.

Technorati Tags: Pension Protection Act, ppa, QDIA, qualified default investment alternatives, 404(c)(5), Field Advisory Bulletin 2008-03, ERISA

Full post as published by Pension Protection Act Blog on April 30, 2008 (boomark / email).