What is a QDIA?
What is a QDIA?
The Pension Protection Act of 2006 (PPA) encourages employers to adopt automatic enrollment features for their participant-directed plans. Further, for any participant who doesn’t make an investment decision, if the employer invests these assets in an investment that meets the Qualified Default Investment Alternative (QDIA) rules, PPA provides a new type of fiduciary liability relief for these “default investments.”
This fiduciary relief states that participants who are defaulted into a QDIA are responsible for their passive decision, or “negative” election, to invest in this specific investment option. The plan sponsor remains responsible for ensuring that the QDIA, just like any other option in the plan’s investment menu, is a prudent investment choice.
Following the enactment of the PPA and the issuance of the Department of Labor’s (DOL) final regulations on QDIA, which is incorporated into ERISA 404(c)(5),* many 401(k)s and other types of participant-directed plans started considering QDIAs as default investments that are more appropriate than money market or other stable-value investments in helping participants meet their long-term retirement planning goals.
A common question asked by plan sponsors is: “How do I select a qualified default investment alternative (QDIA) for my retirement plan?” The table below distinguishes between the three type of long-term QDIAs and helps to answer this question.1
For more information about QDIA, refer to:
For Plan Sponsor Use Only – Not for Use with Participants or the General Public
This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.