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    401k qdia question and answer

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    401k qdia question and answer

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
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    7 views5 pages

    QDIA Q&A 5pg

    Uploaded by

    Gregor
    401k qdia question and answer

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
    Flag for inappropriate content
    of 5
    QUESTIONS AND ANSWERS REGARDING ‘QUALIFIED DEFAULT INVESTMENT ALTERNATIVE (QDIA) 1 Whatis Apia? Under ERISA section 404(e)3), plans that permit participants to dee he investment oftheir accounts may now gan additional fiduciary protection by including a Qualified Default Investment Alterative QDIA"). The QDIA regulations provide a safe harbor forthe investment of participant ‘oniibutions inthe absence of an aflirmative investment election bythe participant. A plan isnot required toffera QDIA. Given the complex requirements associated with ‘QDIA, the Employer should carefully consider whether the additional safe harbor protection outweighs the increased adminsteative burden, Tn most cases, a balanced fund thats prudently selected and ‘maintained will met fiduciary requirements without having to comply with QDIA procedures. I. What Fiductary Rell Does A QDIA Provide? Ifa participant fils to provide investment instructions, the fiduciary ofa participant-dteted plan will not be lable for any loss that isthe direct and necessary result of () investing all or pat of Participant's account in any QDIA, or (i) investment decisions made by a "permite manager” in ‘connection with the management of 2 QDIA. Fiduciares ofa plan that adopts a QDIA remain subject to the profited transaction rules and the duty to prudently select and monitor plan investment alteratves. ‘The erm “permitted manager” means + aminvestment manager ss defined in ERISA section 338); + atmste ofthe pl that meets the roguirments of ERISA section 338); + theplan sponsor who isa named fcr within ERISA section 402(a)2); oF + aminvestment company registered under the Investment Company Act of 1940. IL What Are The QDIA Requirements? ‘To qualify asa QDIA, the investment alternative must have the following characteristic: ‘+ the participant had an opportunity to direct investments but chose ott ‘+ the patieipant is piven appropriate notice ofthe QDIA ina timely manners ‘+ the participant's account is invested ina qualified slteative ("QAA"), whichis an ‘nvestment that: (© doesnot ho or permit the acquisition of employer securities unless an exception apples © is managed by a “permitted manager” and Page 1 of 5 rat Site wrncaws) © ia Target Date Pund, a Census Fund, or an Investment Management Service (oles an exception appliss). the participant receives any material relating to the Q's investments; ‘+ the participant hasan opportunity to transfer asets out of the qualified alternative with the same frequeney available for oer plan investments (but ot less than quarter); and ‘+ the plan offers the opportunity to invest in abroad ange of investment altematives (3s described in FRISA section 404(¢) regulations) in lieu ofthe QDIA, What Are The Throe Types Of AAs? ‘A Target Date Fund. ‘A Target Date Fund is product or prtoio that () applies wencally accepted investment theories, (i) is diversified to minimize the risk of large losses, and (i) provides ‘varying degrees of long-term appreciation and capital preservation through a mix of equity and fixed income exposures based om the participant's age, target retirement date, oF fe ‘expectancy. The Target Date Fund must change asset allocations and associated risk levels over time with the objective of being more conservative asthe participant's age inereases. Examples of Target Date Fund ae a lifecycle fund ora targeted retirement te fund ‘The Target Date Fund may, but isnot required to, consierrsk tolerance, investments, or ‘other preferences of the individual panicipant. The Fund may als, but isnot required to, Consider other fctor in elertingsneesiments, sich asthe benefit provided under an emplayer- provided defined benefit plan. The Target Date Fund may be & stand-alone product or use @ “fund of funds" approach and may be provided through a varieble annuity or poled investment find without regard to anellary features suchas annuity purchase rights or death benefit, ‘guarantees, B. Census Fund, A Census Fund must meet the same requirements as a Target Date Fund with «wo ‘exceptions First, the target evel of risk isnot based onthe age ofthe individual participant but rather the plan participants as a whole. Second, the Census Fund isnot required to change ‘asset allocations withthe goal of becoming more conservative aver ime. An example ofa ‘Census Fund is balanced fund, ©. Investment Management Service. An Investment Management Service is an actively and professionally managed fund tht meets te requirements desribed above for Target Date Funds, cits based onthe Participants age, retirement date, or fe expectaney and becomes more canservative overtime. ‘When Can Investments Be Held in A Stable Value Fund? Certain funds (eferred to collectively as Stable Value Funds) that donot qualify asa Target Date Fund, Census Fund, or Investment Management Service may nevertheless be deemed a QA in certain circumstances. There are two types of Stable Value Funds: a Short-Term Fund and a Grandfathered Page 2 of 5 ra Sb pia ci vt. ‘A Short Term Fund. [A Short Term Fund is product or portfaio that (iis designed Yo preserve principal and provide a reasonable rate of retur, whether o not such retum is guaranteed, consistent with Tiquidty, (i) seeks to mainisin the dollar value that is equal tothe amount vested in the product, (Gi) is offered bya state or feerally regulated financial institation, and (iv) i used only during ‘the first 120 days after the date ofthe participant's Fst elective contribution tothe plan, The se of Short Term Funds is limited to those participants whe have been enrolled through an aulomatic contribution arangement and is intended o allow the plan to “park a participants contribution during the initial stages of the contribution rangement. IFinvestments remain in 8 ‘Short Term Fund ater the 120

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