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Qualified Default Investment Alternatives -
Fiduciary protection for a default investment
by: Pamela McKinney, Manager, Employee Benefits
Many retirement plans allow the participant to direct the investment of their own retirement plan assets, generally because the trustees want to limit the fiduciary liability to which they are exposed. However, if a participant chooses not to direct the investment of their own account, the trustee is still liable to prudently invest those assets (in other words, the trustee should consider each participant's age and risk tolerance in determining how that participant's account should be invested). However, many trustees, afraid of being liable for losses on those accounts, invested them too conservatively, in money market or stable value funds.
The Pension Protection Act of 2006 has now provided a way for trustees to choose a default investment for those participants who do not direct the investment of their assets, thereby obtaining protection from responsibility for losses. The trustee still has responsibility for prudently selecting a Qualified Default Investment Alternative (QDIA). And there are several requirements that must be met to ensure that the "DIA" is "Q". For example, only certain types of investments can be chosen as the QDIA, and participants must be provided with an annual notification regarding the QDIA. If you would like to implement a QDIA for your participant-directed plan, please contact our benefits division at 850-435-7400 or pmckinney@osullivancreel.com.
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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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