Asset Management | FJG/FYI
Industry SpotlIght: DOL Issues Final Regulations on QDIAs
On October 24th, 2007, the Department of Labor (DOL) issued the long awaited Qualified Default Investment Alternatives (QDIA) final regulations. These regs retain many of the proposed provisions, but also offer a few new opportunities. Safe harbor relief is available to fiduciaries of participant-directed 401(k) plans where certain conditions are met. This safe harbor becomes effective December 24th 2007 (or 60 days following issuance of the regs).
The categories of investments qualifying for long-term relief are: lifecycle funds, risk-based portfolios, and investment management services. A key component of qualification is the ongoing fiduciary responsibility to select and monitor these funds based on objective analysis. Also, for plans utilizing the risk-based portfolio QDIA, the plan must determine the fund’s initial appropriateness and whether it continues to be appropriate on an ongoing basis for the plan’s participant base (average age being the key component). Additional conditions must be met regarding the timing of participant notifications, fund restrictions and penalties, provision of materials to participants, and ability to redirect investments.
As expected, capital preservation or stable value investments were not included. The regulations do, however, allow their use as QDIAs under specific limited circumstances.
Please note that this is a brief overview of the 60+ page regulations and preamble issued by the DOL; they are still under examination and other important details may need to be identified.
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