The Department of Labor's (DOL) Employee Benefits Security Administration published technical corrections on April 30 to the DOL's final rule on qualified default investment alternatives (QDIAs) for 401(k) and other defined contribution retirement plans, along with guidance to clarify the scope and meaning of the final rule issued on Oct. 24, 2007.  The final rule implemented provisions of the 2006 Pension Protection Act providing a safe harbor from liability for plan fiduciaries who select default investments for automatically enrolled employees who fail to provide investment directions for their salary-default contributions.  Under the final rule, the safe-harbor QDIAs deemed appropriate for long-term retirement savings are:

• Target date (or "life-cycle") funds, which have asset allocations that shift gradually over time, based on an investor's age;
• Balanced funds, which typically have a fixed blend of stocks and bonds; and
• Professionally managed accounts, a diversified portfolio of funds managed by an outside adviser.  

The newly issued technical corrections affect three areas of the final default investment rule. These include:

• Clarifying the preamble example on "round-trip restrictions" that would affect a participant's (or beneficiary's) ability to liquidate or transfer out of a QDIA within a defined time period;
• Expanding the scope of who can manage a QDIA to include a committee that is a named fiduciary of the plan; and
• Correcting the "grandfather" relief for stable value funds used as a default before the DOL issued its final rule, and providing that these funds must invest primarily in investment products backed by state or federally regulated financial institutions.

 

 Susan Fahey Desmond