15 July Understanding Why a QDIA Matters July 15, 2018 By Petros Koumantaros Employer Connect qdia, qualified default investment alternative, video Understanding Why a QDIA Matters Auto-enrollment has been proven to be effective in raising participation rates in 401(k) plans. As a result, it's been pretty widely adopted across the country, especially in mid- to larger plans. Automatic enrollment creates a situation where many employees fail to make an investment election on their own. This creates a need for a default investment in the lineup. A cash fund has no risk, but also has no growth potential. Other investments may have income or growth potential, but expose you, as plan sponsor, to fiduciary risk by making the decision to direct such contributions. As a result, industry regulators established what has become known as a Qualified Default Investment Alternative or QDIA. A QDIA is designed to meet the criteria of a specific regulation - ERISA section 404(c) - which provides you with a safe harbor from fiduciary liability for investment decisions made by your employees in their 401(k) accounts. In other words, if you offer a QDIA as the default investment in your plan, you won't be liable for investment losses related to contributions made on behalf of employees who failed to make their own investment choices. Under these regulations, a QDIA can be either a target date fund, a balanced fund or a professionally managed account. It's important to note that the selection of one of these needs to reflect the age and income ranges of the employee population as well as your comfort as the plan fiduciary. Don't worry, we're here to help you get this right. It's also important to note that employees must also always be able to opt-out of the the QDIA and self-direct their investments should they wish. Offering a QDIA doesn't alleviate all of the fiduciary liability you have, but it does eliminate your specific risk related to the default investment of the plan when it's used for contributions by employees who enroll but who fail to make their own elections. A QDIA makes the idea of offering auto-enrollment more attractive, and that can drive greater plan participation and improve plan cost efficiency. Let us know if you'd like to review this topic together and discuss how it applies to your situation and plan. We're happy to help. Attached Files Spectrum-Help-Clients-Understand-Why-A-QDIA-Matters.pdf 347.89 KB Related Articles Understanding Financial Statement Audits While we hope you never have had to experience it, you’re no doubt familiar with the idea of an audit of your personal or corporate tax return. But, you may not be familiar with an audit of your qualified retirement plan. This Spectrum Employer Connect video explains the situations where a financial statement audit may be required. Understanding when and for whom these audits are required can help ease your concerns over the prospect of a plan audit. Understanding How Forfeitures Work in Your Retirement Plan We know that employee contributions to a 401(k) plan must always be 100% vested. However, employer contributions may have a vesting schedule attached to them. That means, when employees leave the company and plan, they may leave behind forfeitures. This Spectrum Employer Connect video highlights the advantages of using vesting for employer contributions. And we also discuss the most common methods for treating plan forfeitures. Newly Implemented Cloud Technologies Improve Client Outcomes Spectrum Pension Consultants, Inc. has deployed new cloud technology solutions designed to support employer organizations and deliver improved outcomes for their workforce. 401k Plan Most Frequently Asked Participant Questions Do 401k plans seem too complicated? We answer the 401k plan questions most frequently asked by retirement plan participants. Included are answers to 401k plan questions on contributions, distributions, investments, retirement savings, and vesting. Did You Know You Are a Fiduciary? As a plan sponsor of a qualified retirement plan, you are a fiduciary of your plan. Unfortunately, some clients don’t know that. Nor do they understand the practical ramifications of this. That’s why we’re providing expert guidance on this vitally important topic. In this episode of Spectrum Employer Connect, we provide an overview of an employer's fiduciary role and responsibilities. Please enable JavaScript to view the comments powered by Disqus. blog comments powered by Disqus