<nobr>Oct 23, 2007</nobr>

DOL to Issue Final Rule on Qualified Default Investment Alternatives

The Department of Labor has released an advance copy of the final regulation for default investment alternatives under participant directed individual account plans.

Under the Pension Protection Act of 2006, safe harbor relief was afforded to fiduciaries that invest participant assets in certain types of default investment alternatives in the absence of directions from a participant. While plan fiduciaries remain responsible for the prudent selection and monitoring of the Qualified Default Investment Alternatives (QDIA), a plan fiduciary that complies with the regulation will not be liable for any loss or breach that occurs as a result of such investments.

The final regulation provides for three permanent QDIAs:

• A mixed-investment product that considers the individuals age or retirement date (such as a life-cycle or targeted-retirement-date fund);



• An investment service that allocates contributions among existing plan options to provide an asset mix that considers the individuals age or retirement date;



• A mixed-investment product that considers characteristics of the group of employees as a whole, rather than each individual (such as a balanced fund).

In addition, the regulation provides relief for a capital preservation product such as a stable value fund, but only for the first 120 days of participation. Thus, a plan sponsor utilizing a capital preservation product would apparently have to advise a participant of the 120-day limitation; provide an opportunity for the participant to shift their funds; and advise the participant that in the absence of a participants instructions, their funds would be shifted after 120 days to one of the three other QDIAs.

The final regulation also includes certain conditions that must be satisfied to obtain safe harbor relief from fiduciary liability for investment outcomes.

Stand-alone stable-value funds were not included as a default option. However, existing stable value funds are grandfathered, but only for existing assets; future contributions to the fund do not fall within the protection of the QDIA regulation.

The rule will be effective 60 days from the date of publication (expected October 24) in the Federal Register.

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Final QDIA Regulations

Labor Department Fact Sheet

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