QDIA Notice Rules
Rev. 11/20/09; E-mail Alert 2009-18

The Pension Protection Act of 2006 (PPA) created the Qualified Default Investment Alternative (QDIA). Final QDIA regulations were issued October 24, 2007. The QDIA provides employers a safe harbor from fiduciary risk when selecting an investment for a participant or beneficiary who fails to elect his or her own investment. 

Section 404(c)(5)(B) of ERISA contains the QDIA notice requirements, which employers must comply with if they intend to qualify for fiduciary relief.  The failure to provide a QDIA notice results in no fiduciary relief being available for the plan year in which the notice is not provided.

Since issuing the final regulations detailing the QDIA notice requirements the DOL has published additional guidance.  This article will outline the final QDIA notice rules, and additional guidance, and also provide links to related QDIA information on our website.

Qualified Default Investment Alternatives
The PPA goal for the QDIA is that it meet a worker’s long-term retirement savings needs, rather than just preserving capital. The final regulations provide QDIA investment alternative mechanisms, rather than specific products. Click here for a detailed explanation of each of the QDIA investment alternatives.

Fiduciary Liability Relief
Click here to view the six conditions for fiduciary liability relief from the final regulations.

Who Should Receive a QDIA Notice?
QDIA regulations do not specify to whom the annual notice should be given to; therefore the safest approach is to provide the notice to all eligible employees.  It is also a more conservative approach to provide a notice to all eligible participants since a default investment could be needed at a variety of times and under a variety of circumstances, and the employer will be better protected if the notice is provided to all participants.  The notice should be carefully worded to explain that it applies only if the participant has not selected his or her investment options and thus has been defaulted into the QDIA investments as a result of not making a selection.

Timing of Notice
According to the final QDIA regulations, the notice must be provided:

(i) (A) At least 30 days in advance of the date of plan eligibility, or at least 30 days in advance of the date of any first investment in a QDIA; OR

(B) On or before the date of plan eligibility provided the participant has the opportunity to make a permissible withdrawal (90-day withdrawal under Section 414(w) of the code); AND

(ii) Within a reasonable period of time of at least 30 days in advance of each subsequent year.

Example
The plan provisions are one month eligibility, quarterly entry dates
— Participant is hired July 10, 2009
— 1 month of service is satisfied August 9, 2009
— Entry date is October 1, 2009

The QDIA notice must be provided by September 1, 2009.  If the notice is not provided until October 1, 2009 and the employee does not choose investments, QDIA relief is still available beginning 30 days after the notice is provided.

QDIA Notice Content Requirements
Click here for the content requirements listed under the final QDIA regulations

FAB 2008-3
On April 29, 2008, the DOL issued FAB 2008-3 to add some clarification to a number of issues involving QDIAs.  The FAB was written in Q&A format.  Click here for our article breaking down the FAQs. 

Click here for additional MHCO QDIA articles.

Click here to review the QDIA communications from our parent company, Newkirk.