Since our QDIA article, we have received a number of questions on QDIAs and the QDIA notice. Here are a few.

Does a QDIA notice have to be provided to participants by November 23, 2007?

The final regulations are effective December 24, 2007, and in order to provide 30 days advance notice to participants and have the fiduciary protections be effective on the initial date, a QDIA notice should theoretically be provided by then. It would also appear that the same notice would be timely for the 2008 calendar year plans, without having to send a second notice in early December.

If you do not provide the QDIA notice by November 23, 2007, can you provide the QDIA notice at a later and have the QDIA rules apply 30 days after it was provided?

Yes. Keep in mind that fiduciary relief will only start 30-days after the notice is provided.

Is the IRS going to provide an automatic enrollment and default investment notice?

Yes. In fact, on November 15, 2007, the IRS provided such a model notice. We posted this model to our home page and mailed an rtf version to our own clients on November 15. They are also linked here. 

Does a QDIA have to be started as of the first day of the plan year?

No, but fiduciary protection will only be provided from the point that all the QDIA requirements are satisfied.

Who provides the QDIA notice?

Clearly, participant enrollment is a function of the plan administrator (in most cases the employer), and thus, the duty falls on them.  However, the employer may contract with service providers to handle enrollment processing.  Thus, the notice will be provided by whoever normally handles enrollments for the plan, unless an alternative arrangement is made.  In most plans, it is one of the service providers that will have responsibility for this function.

Are only automatic enrollment plans able to use QDIAs?

No. A QDIA may be utilized in a plan without automatic enrollment. For example, a 401(k) plan participant completes and returns the deferral election but not the investment election form.

The IRS in its proposed automatic enrollment guidance, states that a qualified automatic contribution arrangement may have an all-in-one safe harbor 401(k)/automatic enrollment/QDIA notice. Just how many notice variations are there?

For plans that do not have a safe harbor 401(k) nor automatic enrollment, but who want to have a QDIA, there is a stand-alone QDIA notice. For eligible automatic enrollment arrangements (EACA), there is the combined automatic enrollment and QDIA notice. For a plan that is safe harbored with a QDIA and no automatic enrollment, then there is a combined safe harbor and QDIA notice.

Immediate eligibility and no investment election returned, how can QDIA notice timeframe be satisfied? 

Service eligibility requirements of less than 30 days can seemingly be problematic.  When the DOL was first presented with the issue, they answered it was never their intent to interfere with this design and prohibit immediate or short eligibility. Accordingly, in plans with automatic enrollment that comply with the provisions of Internal Revenue Code Section 414(w), the notice may be provided as late as the date the employee becomes eligible to participate in the plan.  Thus, the 30-day notice requirement will, in theory, only apply to automatic enrollment plans with more than 30-day eligibility.  Obviously, since non-automatic enrollment plans will never satisfy the Code Section, the 30-day will also always apply to those plans. 

Note that the DOL does note in the preamble that "if a fiduciary fails to comply with the final regulation for a participant’s first elective contribution because a notice is not provided at least 30 days in advance of plan eligibility, the fiduciary may obtain relief for later contributions with respect to which the 30-day advance notice requirement is satisfied."

In addition,  the final regulation also permits the 30-day notice clock to start "on or before’’ the date of plan eligibility if the participant is permitted to make a permissible withdrawal in accordance with 414(w) of the Code (which is the 90-day revocation withdrawal).

Do we have to provide the QDIA notice annually to all participants or just those who are in a QDIA investment?

The final regulations do not appear to address this question.  Since logically only those who have not made an investment decision will be covered under the QDIA, the follow-up annual notices would only need to be provided to participants under the arrangement.  However, as we always lecture “if it is the logical answer go the other way”; since the Regulations don’t provide specific guidance on-point, the safe answer is to provide the notice to all participants.