Qualified Default Investment Alternatives (QDIA) Modifications and Clarifications

DOL FAB Addresses QDIA Issues discusses Field Assistance Bulletin No. 2008-03 – Guidance Regarding Qualified Default Investment Alternatives (29 CFR § 2550.404c-5):

• Employer Fee Payment During 90-Day "No Fee" Period. While the regulations protect the participant from fees, employers are not prohibited from paying them.
  
• 90-Day "No Fee" Period Inapplicable to "Existing" Assets of Current Participants.
  
• No Prohibition on "Round-trip" Restrictions.
  
• 120-Day Capital Preservation QDIA Option Only Available for EACA.
  
• QDIA Notice May be Combined with Traditional Safe Harbor. It may also be combined with a QACA notice. The notice requirement is NOT satisfied by putting it in the SPD.
  
• Detail Regarding QDIA Notice Fee Disclosures. The regulations require an initial notice and an annual notice.
  
• Limited Regulatory Changes. For the most part, the FAB only reflects DOL interpretation of the regulations and does not actually change them. However, the article notes two modifications to the regulations:

  "First, the DOL modified the list of persons that may manage a QDIA to change one of the listed alternatives from the plan sponsor (i.e., the employer maintaining the plan) who is a named fiduciary of the plan, to "the plan sponsor, or a committee comprised primarily of employees of the plan sponsor, which is a named fiduciary within the meaning of [ERISA §402(a)(2)]." Second, the DOL modified the definition of stable value products or funds, for purpose of the "grandfathered" investment alternative permissible for default investments made before December 24, 2007, to provide that stable value products or funds must be designed to preserve principal and must invest primarily in investment products that are backed by state or federally regulated financial institutions, rather than requiring (as did the original final regulations) that the investment product be designed to guarantee principal and interest, and that a state or federally regulated financial institution guarantee the principal and the rate of return. Otherwise, the definition of the grandfathered investment remains the same as under the original final regulations."