The regulation means plan sponsors of participant directed individual account plans will not be liable for investment outcomes for investments to which participants who do not otherwise select their investments are defaulted if they choose a QDIA as the default investment and follow the guidelines set out by the department. Campbell warns, however, that sponsors will still be responsible for prudently selecting and monitoring the particular funds that make up the QDIA and the managers of those funds. Campbell pointed out that in the final regulation the DoL did not specify particular investment products, but provided mechanisms with which to ensure participants are invested appropriately.
Change From Proposed Regulation
The more broad definitions of QDIAs, along with the expansion of eligible providers from just fund managers and investment managers to include plan sponsors and trustees also allows for portfolios of funds offered in the plan selected by the plan sponsor or an adviser to the plan to qualify as a QDIA. In the case where an adviser selects the asset allocation of such a portfolio, the plan sponsor would be the fiduciary or investment manager under the plan, Campbell said.
One significant change from the proposed regulations issued last year is a transition rule by which contributions that were previously defaulted into stable value funds are grandfathered under the protections of the QDIA regulation. Such contributions invested in stable value funds prior to the effective date of the regulation (roughly, December 23) may stay invested in the funds, but new contributions for those participants going forward must be invested in a QDIA in order for the plan sponsor to remain protected from liability.
Campbell pointed out that stable value funds would likely still be a very big part of QDIAs as underlying investments.
The regulation provides that a QDIA generally must not invest in employer securities.
The regulation as originally proposed by the DoL required notice be given to participants 30 days prior to eligibility for plan participation, but some commenters pointed out this would not work for plans with immediate eligibility that utilize automatic enrollment. The final rule adds that notice be given 30 days prior to eligibility or 30 days prior to the initial investment into the default fund and also includes the option to provide concurrent notice in cases where 30 days prior to the initial investment is not feasible.
Rather than stating that participants who opt out of enrollment and wish to withdraw their funds from the default investment must be allowed to do so without penalty, the regulation specifies that no fees or penalties must be imposed that are not otherwise imposed on participants who deliberately select the QDIA as an investment.
More information available at Final QDIA Rules Published.