Participant investments

As it turns out not everyone wants to be in charge of investing their own retirement plan investments. We’ll call this group the “invest it for me” group.

The Pension Protection Act (PPA-2006) made it easier for employers to provide an “invest it for me” solution. The solution stemmed from the automatic enrollment feature that came about through the PPA. An employer adopting automatic enrollment is likely to have several participants that never make an investment election. So where should this money be invested? If the employer makes the investment decisions aren’t they liable for the outcome of those choices?

The solution to this dilemma was to create “Qualified Default Investment Alternatives” or QDIA’s. A QDIA can be a balanced fund or as most are more familiar with, some kind of fund that targets the participants age (target date funds) or risk adjusted solution – a conservative or moderate allocation, etc. While the plan fiduciaries must select and monitor these QDIA investment options just as they would any other investment offered in the plan, properly executed, the plan fiduciaries would be shielded from liability relating to investment losses or insufficient gains.

So for the employee that checks the “invest it for me” box on the enrollment form they can be defaulted into one of these QDIA funds just like an automatically enrolled participant that made no election and the fiduciaries of the plan receive the same protections from liability.

Be aware that just like auto enrollment the establishment of a QDIA investment menu requires that an annual notice be provided to plan participants. Failure to provide these notices can result in the loss of fiduciary protection and possible fines.

Subject Reference Information