The QDIA provides employers a safe harbor from fiduciary risk when selecting an investment for a participant or beneficiary who fails to elect his or her own investment. Therefore, employers following QDIA regulations will have no legal liability for market fluctuations when providing a QDIA for employees who do not choose their own investments.
Final regulations governing QDIAs were issued by the Department of Labor on Oct. 24, 2007. Of primary interest are the conditions that must be satisfied in order to obtain safe harbor relief from fiduciary liability for investment outcomes and guidance on investment mechanisms qualifying as QDIA. Both are briefly summarized below:
Safe Harbor Conditions
*Assets must be invested in a "qualified default investment alternative" as defined in the regulation.
*Participants and beneficiaries must have been given an opportunity to provide investment direction but have not done so.
*A notice generally must be furnished to participants and beneficiaries in advance of the first investment in the QDIA and annually thereafter. The rule describes the information that must be included.
*Material, such as investment prospectuses, provided the plan for the QDIA must be furnished to participants and beneficiaries.
*Participants and beneficiaries must have the opportunity to direct investments out of a QDIA as frequently as from other plan investments, and at least quarterly.
*The rule limits the fees that can be imposed on a participant who opts out of participation in the plan or who decides to direct their investments.
*The plan must offer a "broad range of investment alternatives" as defined in the Department's regulation under 404© of ERISA.
QDIA Types (Mechanisms)
The final regulation did not identify the specific investment products - rather, it describes mechanisms for investing participant contributions. The intent being to ensure that an investment qualifying as a QDIA is appropriate as a single investment capable of meeting a worker's long-term retirement savings needs. The four types of QDIAs are:
*A product with a mix of investments that takes into account the individual's age or retirement date (for example, a life-cycle or targeted retirement-date fund);
*An investment service that allocates contributions among existing plan options to provide an asset mix that takes into account the individuals age or retirement date (for example, a professionally managed account);
*A product with a mix of investments that takes into account the characteristics of the group of employees as a whole, rather than an individual (for example, a balanced fund); and
*A capital preservation product for only the first 120 days of participation (an option for plan sponsors wishing to simplify administration if workers opt out of participation before incurring an additional tax).
In addition, regulations state that a QDIA must either be managed by the investment manager, plan trustee or plan sponsor that is named fiduciary, or be an investment company registered under the Investment Company Act of 1940, and that any QDIA generally may not invest participant contributions in employer securities.
B. Green
http://www.accountperformance.com
Article Source: http://EzineArticles.com/?expert=B_Green
Tags:
ไม่มีความคิดเห็น:
แสดงความคิดเห็น