6th Circuit Court Issues Analysis of QDIA Requirements

The Sixth Circuits ruling on Qualified Default Investment Alternative (QDIA) requirements provides important guidance for plan fiduciaries and 3(38) Investment Managers regarding their responsibilities when implementing and maintaining QDIAs.

QDIA Safe Harbor Requirements

The QDIA was enacted as a “safe harbor” under the Pension Protection Act of 2006. The purpose was to mitigate fiduciary liability tied to investment losses for investment decisions made by a fiduciary on the participants behalf.

By establishing a QDIA in strict adherence to the regulatory guidelines, a fiduciary automatically defaults a participants account balance into the QDIA if no affirmative election is made by the participant.

Key QDIA Responsibilities

• Monitoring performance and confirming the QDIA investments are not subject to fees or penalties for transfers out within the first 90-days
• Determining if and when to replace a QDIA
• Drafting a QDIA notice that is written in a manner calculated to be understood by the average participant
• Preparing the annual QDIA notice informing participants of their right to transfer or opt out
• Ensuring plan terms and design features comply with the DOLs QDIA requirements

The Importance of Proper Notice

Plan sponsors are obligated to provide required notices to all plan participants via first-class mail, informing them of any transfers and their right to elect otherwise. Courts have determined that when these procedures are followed properly, plan sponsors are not liable for investment losses.