Tuesday, April 29, 2008

Field Assistance Bulletin No. 2008-03 – Guidance Regarding Qualified Default Investment Alternatives (29 CFR § 2550.404c-5)

Field Assistance Bulletin No. 2008-03 – Guidance Regarding Qualified Default Investment Alternatives (29 CFR § 2550.404c-5)

The DOL issued guidance and technical corrections to the default investment alternatives regulations:

Washington – The U.S. Department of Labor's Employee Benefits Security Administration today announced publication of technical corrections to the final regulation on qualified default investment alternatives along with guidance to clarify the scope and meaning of the final rule.

On October 24, 2007, the department published final rule to implement Pension Protection Act provisions providing a safe harbor from liability for fiduciaries of plans in which the contributions of workers who do not provide investment direction (such as automatically enrolled workers) are invested in "qualified default investment alternatives" or QDIAs. The QDIAs are designed to encourage the investment of employee assets in investment vehicles appropriate for long-term retirement savings.

The technical corrections affect three areas of the final regulation on QDIAs. These include changes clarifying the preamble example on "round-trip restrictions," expanding the scope of who can manage a QDIA to include a committee that is a named fiduciary of the plan, and correcting the "grandfather" relief for stable value funds.

Field Assistance Bulletin 2008-03 provides guidance on a series of frequently asked questions raised by the employee benefit community since publication of the final rule. The questions address issues relating to the scope of the regulation, the notice requirements, the 90-day limitation on fees and restrictions, management and asset allocation of QDIAs, the capital preservation investment option, and the grandfather relief for stable value funds.

An updated fact sheet on the default investment regulation can be found at www.dol.gov/ebsa. The technical corrections are to be published in the April 30 edition of the Federal Register.

FAB 2008-03


On October 24, 2007, the Department of Labor (Department) published a final regulation(1) providing relief from certain fiduciary responsibilities under the Employee Retirement Income Security Act (ERISA) for investments made on behalf of participants or beneficiaries who fail to direct the investment of assets in their individual accounts. See 29 CFR § 2550.404c-5 (hereafter referred to as the "QDIA regulation"). Since publication of the QDIA regulation, a number of issues have been raised concerning the scope and meaning of various provisions of the QDIA regulation. This Bulletin is intended to supplement the QDIA regulation by providing guidance, in a question and answer format, on a number of the most frequently asked questions.

Questions And Answers

Scope Of QDIA Regulation

Q-1. To what extent does the QDIA regulation relieve a plan sponsor from fiduciary liability when the plan sponsor chooses to create and manage a qualified default investment alternative (QDIA) itself using a mix of the plan's available investment alternatives?

Q-2. Is relief available under the QDIA regulation for assets invested in a default investment prior to the effective date of the regulation?

Q-3. Could a fiduciary obtain the relief referred to in Q-2, above, with respect to assets invested in a QDIA on behalf of participants and beneficiaries who elected to invest in a default investment prior to the effective date of the regulation?

Q-4. Is fiduciary relief under the QDIA regulation available if non-elective contributions such as qualified non-elective contributions (QNECs), or the proceeds from litigation or settlements, are invested in a QDIA?

Q-5. Does the QDIA regulation, including the preemption provisions, apply to plans under section 403(b) of the Internal Revenue Code (Code)?

Notice Requirements

Q-6. How much information regarding fees and expenses attendant to a QDIA must be provided in a notice? Can this information be provided by attaching other disclosure documents to the notice?

Q-7. Does the flexibility permitted with respect to use of the Treasury Department's electronic distribution rules apply only to the QDIA notice requirement, or more broadly (i.e. to pass-through of investment materials)?

Q-8. Do plan sponsors have to combine the QDIA notice required by the regulation with a notice required by Code sections 401(k)(13) and 414(w)?

Q-9. Are the timing requirements for the notices required by the Department of Labor's QDIA regulation the same as the timing requirements for the notices required by the Treasury Department's proposed regulations under Code sections 401(k)(13) and 414(w)?

Q-10. Can the QDIA notice be combined with the Code section 401(k)(12) safe harbor notice in the same manner that it can be combined with the Code section 401(k)(13) and 414(w) notices?

90-Day Limitation On Fees And Restrictions

Q-11. Would the payment of a fee or expense (e.g., redemption fee) by a plan sponsor or service provider that would otherwise be assessed to the account of a participant or beneficiary during the initial 90-day period satisfy the requirements of paragraph (c)(5)(ii) of § 2550.404c-5?

Q-12. For purposes of § 2550.404c-5(c)(5)(ii), does the 90-day clock start from the date an investment becomes a QDIA, or does it begin only in reference to a participant who is being newly "defaulted" into a QDIA?

Q-13. Is a QDIA prohibited from including any "round-trip" restriction for the first ninety days?

QDIAs – Management And Asset Allocation

Q-14. Can an investment fund or product with zero fixed income (or, alternatively, zero equity) qualify as one of the permanent, long-term QDIAs described in paragraph (e)(4)(i) through (iii) of the final regulation?

Q-15. The QDIA regulation, at § 2550.404c-5(c)(4), requires that defaulted participants be provided material in accordance with the regulations governing ERISA section 404(c) plans. Is the QDIA regulation intended to require that all of the referenced information be furnished automatically, without regard to whether some of the information for ERISA section 404(c) plans is required to be provided only upon request of a participant or beneficiary?

Q-16. Can a plan sponsor use two different QDIAs, for example, one for its automatic contribution arrangement, but another for rollover contributions?

Q-17. In the case of an individual account plan sponsored by a single employer, can a committee that is established by a plan sponsor and that, pursuant to the documents and instruments governing the plan, is a named fiduciary of the plan be treated as managing a QDIA for purposes of paragraph (e)(3)(i)(C) of § 2550.404c-5?

120-Day Capital Preservation QDIA

Q-18. Is the 120-day capital preservation QDIA, described in paragraph (e)(4)(iv) of § 2550.404c-5, available only for plans that include an EACA?

Q-19. Are plans required to provide a 120-day capital preservation QDIA?

Q-20. Can a plan sponsor manage the 120-day capital preservation QDIA?

Grandfather-Type Relief For Stable Value Funds

Q-21. Must a plan sponsor distribute a notice thirty days before the effective date of the QDIA regulation to obtain relief for prior contributions to a stable value fund or product?

Q-22. What types of stable value products or funds did the Department intend to include as QDIAs for purposes of the "grandfather"-type relief described in paragraph (e)(4)(v) of § 2550.404c-5?

Technical Corrections

29 CFR Part 2550

RIN 1210-AB10

Default Investment Alternatives Under Participant Directed Individual Account Plans

QDIA Guidance: Default Investment Alternatives Under Participant Directed Individual Account Plans

Blog Posts/Updates:

Qualified Default Investment Alternatives (QDIA) – DOL Final Regulations

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