What exactly is a QDIA?
A QDIA is a Qualified Default Investment Alternative. To help illustrate what that means, let’s assume you’re using automatic enrollment as a key feature in your 401(k) plan.
Employees may have begun to defer but are still lagging on making an investment selection.
How can you, as a plan sponsor, handle this situation?
According to the Pension Protection Act of 2006, you may actually direct those participants’ investments so long as you give them the required 30-day notice period.
Lifestyle Funds or Target Age Funds are the most common QDIAs. The latter uses a participant’s age to determine risk and help them build a paycheck for life.
If your due diligence, documentation, and QDIA are all in proper order, the Pension Protection Act gives you absolute fiduciary protection.
This automatic feature is a win-win. Your participants can be sure that they will have a paycheck for life, and you can feel secure in having key fiduciary protection. As a result, your plan will benefit everyone involved.
If you have any other questions or would like more information, feel free to give me a call or send me an email. I look forward to hearing from you soon.