You want your retirement plan to attract and retain key personnel, lower overall costs, and contain appropriate and competitive investments. When coming up with the lineup, you may choose a QDIA as a safe-harbor option. A QDIA is an investment fund or option designated as a default fund for investment contributions when employees fail to make an election.
Developed by the Pension Protection Act of 2006, QDIAs seek to increase participation through automatic enrollment but can be applied to any participant enrolled in your plan who hasn't confirmed any investment choices.
A QDIA, if properly selected and implemented, provides you and your plan sponsors with protective relief regardless of the investment outcome of the fund. Some firms see it as a silver bullet to increase plan participation while keeping owners and sponsors better protected.
QDIAs must meet the Employee Retirement Income Security Act’s criteria for protective relief, which includes, but may not be limited to, the following:
Know the details
When an employee contributes money to a 401(k) account but hasn't made an investment election, the funds are automatically invested into a QDIA. The plan fiduciary — you or the 401(k) manager — is responsible for selecting the QDIA.
All 401(k) plans should have a QDIA so that you and employees aren't saving without investment elections. Plans with automatic enrollment always need a QDIA, but other situations occur that also result in the need for QDIAs, such as:
There are four types of QDIAs:
A QDIA protects your employees from missing out on potential long-term growth when they don't make an investment selection. It simplifies investment decision-making by selecting the 401(k) investments for them — money will automatically be invested in long-term retirement savings. Let us know if we can help you with these issues.
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