The U.S. Department of Labor (DOL) recently released subsequent guidance to the final qualified default investment alternatives (QDIA) regulations that were issued in October 2007 (see DOL Releases Final Regulations on Default Investments). Field Assistance Bulletin 2008-03 (FAB) and corrective amendments to the final regulations clarify and provide more guidance for plan fiduciaries on the QDIA notice requirements, fee limitations for permissible withdrawals, and the use of capital preservation funds.

The selection of QDIAs, although optional, has become an important consideration for plan sponsors who adopt automatic contribution arrangements. Participants who are automatically enrolled in a defined contribution plan often fail to direct their payroll contributions to the investment options available under the plan. If non-directed contributions are placed in a default investment that meets all of the DOL's requirements, plan fiduciaries are relieved from liability for making an investment decision on behalf of such participants. 

The FAB sets forth twenty-two Q&As to clarify the QDIA rules. Some of the highlights of the Q&As are as follows:

  • A plan sponsor is relieved of liability from its decision to invest all or part of a participant's account in a QDIA only if the plan sponsor is a named fiduciary.

  • No fiduciary relief is available for non-elective contributions invested in a QDIA if participants did not have an opportunity to direct the investment of these amounts.

  • Fiduciaries of ERISA 403(b) plans may receive relief under the QDIA rules.

  • Plan sponsors may provide participants with a prospectus or profile prospectus for the QDIA to outline shareholder fees and the expense ratio for the fund in order to satisfy the fee disclosure notice requirement.

  • Plan sponsors are not required to combine the QDIA notice with a safe harbor automatic contribution notice, although doing so is permissible.

  • Contrary to the preamble of the final regulations, "round trip" restrictions (restrictions that affect a participant’s ability to reinvest in a QDIA for a limited period of time) are permissible.

  • Plan sponsors may select two different QDIAs for the same qualified plan. For example, one QDIA could be used for the investment of rollover contributions and another could be used for automatic contributions.

  • 120-day capital preservation QDIAs may only be used by plans that include an eligible automatic contribution arrangement (EACA). EACAs allow participants to request a withdrawal of their plan account within the first 90 days of participation.

Ballard Spahr's Employee Benefits and Executive Compensation Group has counseled many clients on the selection of QDIAs for their plans and has assisted them in complying with the notice requirements under the final regulations. For more information, please contact Brian Pinheiro at or 215.864.8511, or members of the firm's Employee Benefits and Executive Compensation Group.


Copyright © 2008 by Ballard Spahr LLP.
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