The Department of Labor (DOL) recently issued final regulations extending fiduciary relief with respect to investment performance using qualified default investment alternatives (QDIA). The following questions and answers explain the requirements for utilizing a QDIA, including a detailed discussion of "stable value funds," often historically offered as the default fund.

Question and Answers: Qualified Default Investment Alternatives and "Stable Value Funds"

Q1. What is a QDIA?

A1. Many participants, for a number of reasons, accept sponsor-chosen default investment options instead of making positive elections. However, plan sponsors should be concerned with the fiduciary responsibility associated with sponsor-chosen investments, especially when poor long-term returns result in lower investment value and a less secure retirement. Introduced in the Pension Protection Act of 2006, the QDIA was designed to promote wider implementation of automatic 401(k) plan enrollment by protecting plan sponsors from excess fiduciary liability (but the fiduciary relief offered by a QDIA extends beyond automatic enrollment to all default investments). Investing participant assets in a default investment option that qualifies as a QDIA affords a plan sponsor the same fiduciary protection as they receive from participant-directed investments. The DOL regulations, effective December 24, 2007, define the QDIAs.

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