The QDIA Safe Harbor
The new Qualified Default Investment Alternative (QDIA) safe harbor was created by Section 624 of the Pension Protection Act, to address the issue of plan participants that fail to affirmatively elect where to direct their periodic contributions and plan assets. This new safe harbor enables plan fiduciaries to direct all un-allocated participant contributions and assets to a default investment option, which must be an investment fund or portfolio that is:
- Invested based upon the participant’s age, target retirement date or life expectancy
- Consistent with a target level of risk appropriate for participants of the plan as a whole
- Not a stable value or money market fund
In addition, the QDIA Safe Harbor may be also extended to investment management services that allocate an individual participant’s account among the plan’s available investment options – based upon the participant’s age, target retirement date or life expectancy. However, in order to qualify as a bona fide QDIA, such managed account solutions must meet additional criteria provided under the regulations.
Nevertheless, the designation of a QDIA for every 401(k) plan can serves as a low-cost way for plan fiduciaries' to shield themseleves from claims by disinterested or disconnected participants - who fail to make affirmative elections for the investment of their 401(k) plan account balance(s).