Investing February 11, 2021

A Review of QDIA Regulations

Introduced as part of the Pension Protection Act of 2006, plan sponsors must follow certain rules to get the fiduciary protection that comes from offering qualified default investment alternatives.
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Art by Ryan Garcia

Qualified default investment alternatives (QDIAs) are soluble options to create portfolio growth for defined contribution (DC) plan participants while protecting plan fiduciaries.

QDIAs were introduced in 2006 by the Pension Protection Act (PPA) and offer a path for plan sponsors to designate default investment alternatives for participants who fail to choose investments. Plan fiduciaries can select between target-date funds (TDFs), lifecycle funds, managed accounts and balanced funds.

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Balanced funds offer a mix of equity and fixed-income investments. These funds are targeted to the plan as a whole rather than individual participants, says Douglas Neville, attorney, officer and practice group leader at Greensfelder, Hemker & Gale, P.C. 

Professionally managed accounts are similar to balanced funds—they also provide a mix of equities and fixed investments—but they are specifically tailored to each individual participant. TDFs invest based on a participant’s age or time to retirement, and lifecycle funds invest according to a participant’s risk tolerance, which also could be based on age.

Providing a QDIA offers two main advantages: For plan sponsors, it relieves fiduciaries of liabilities related to investment losses, with the added benefit of automatically providing investments that may lead to future growth. This is why QDIAs are most popular in plans with automatic enrollment, Neville says.

“They’re crucial for plans with participants who are not going to be making investment elections,” he adds. “For someone who fails to make an investment election, if you can meet the requirements to satisfy the QDIA rules, it reduces your fiduciary liability significantly.”

Providing a default investment alternative completes all the work in making an investment choice and simplifies the DC plan process by automatically investing participants’ long-term savings, Neville explains.

Follow the Rules

One of the most significant requirements plan sponsors must meet in offering QDIAs is to allow participants to choose their own investment selections, Neville says. If a participant fails to do so by the required deadline, then plan fiduciaries can choose a default alternative.

Second, fiduciaries are required to issue a paper copy of plan notices “at least 30 days in advance of the first time the amount would be invested in a QDIA,” says Neville. For plans with immediate eligibility, the notices must be provided as soon as practicable. Plan sponsors are also required to issue notices annually at least 30 days prior to each plan year.

Plan participants also must be given materials related to the QDIA, such as prospectuses or notices of how the vehicle invests. Additionally, the plan must allow participants to switch out of the QDIA as often as other participants may change their plan investments. At a minimum, plan participants must be given this opportunity at least quarterly, Neville notes.

Finally, there are restrictions on a QDIA’s features. For example, the investments selected cannot impose financial penalties on withdrawals from the QDIA when a participant is moving funds to other investment options for the plan.

Robyn Credico, managing director of retirement at Willis Towers Watson, also mentions that plan fiduciaries must dutifully continue to monitor a QDIA regularly. “The biggest, most important rule is that a fiduciary has to be careful of what they pick in a QDIA and they have to monitor it on an ongoing basis,” she says.

This is particularly true for TDFs. Because TDFs use glide paths that shift from aggressive to conservative over time and are based on a participant’s age, it’s trickier to benchmark these investments against other alternatives. This poses a unique challenge for fiduciaries, Credico says. “Especially for TDFs, you need to benchmark frequently, as to whether or not it is appropriate for plan participants and whether your participants are using it,” she explains.

Can You Offer Two QDIAs?


Plan sponsors typically will provide one qualified default investment alternative (QDIA), but it is possible to offer multiple, different options for distinct groups of participants, also known as hybrid QDIAs, Neville says.

However, hybrid QDIA adoption by plan sponsors is rare. There are different ways the industry defines hybrid QDIAs, but, generally, they are set up so that a certain segment of a defined contribution (DC) plan participant population is first defaulted into one vehicle, and then later defaulted into a different vehicle when certain triggers are met, James Martielli, head of Vanguard Investment Solutions, previously told PLANSPONSOR.

Credico explains that some fiduciaries will offer a hybrid QDIA that first invests participants in a target-dated fund (TDF) and moves them to a more personalized managed account as they approach retirement, such as at age 50, for example.

Since managed accounts tend to have higher fees than other types of QDIAs, they might not be best for younger participants, but they can offer more personalization for moving to more conservative investments closer to retirement, Credico says.

Benefits February 9, 2021

Retirement Benefits Moving Beyond Just a Retirement Plan

Holistic retirement programs, which include financial wellness, health and voluntary benefits, put employees in a better position to reach their long-term goals.
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Art by Erick M. Ramos

Employers are increasingly offering retirement benefits that focus on financial success in all areas of employees’ lives and include much more than the core retirement plan.

These holistic retirement programs can include help with emergency savings; counseling on debt relief, including credit card and student loan debt; college savings 529 plans; health savings accounts (HSAs); disability and life insurance; and budgeting, “to help employees gain greater control of their savings and spending habits,” says Matthew Eickman, national retirement leader at Qualified Plan Advisors.

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“In the past five to seven years, plan sponsors have begun to realize how complex it is for their employees to manage all of their investing and financial goals,” says Chris Ceder, retirement strategist at Goldman Sachs Asset Management.

Eric Levy, executive vice president at AIG Retirement Services, agrees that “how people manage their financial balance sheet has become more complex.”

Ceder adds: “Employers have also come to realize that their workers will not be able to save for retirement if they don’t first address other pressing goals that seem much more relevant to their workforce—like saving for a home, paying down a mortgage, elder care, budgeting, or paying down student debt. For the majority of their workers, retirement is far off. Offering a comprehensive financial wellness program builds workforce resiliency and results in a more resilient organization.”

Suzanne Schmitt, vice president, financial wellness, at Prudential, says a holistic retirement program should include “an objective assessment of workers’ financial wellness through a gauge of how well an individual is managing their day-to-day finances, protecting against key risks and saving for major goals.” She adds that financial wellness benefits “should then point them toward relevant next steps than can increase their financial health and retirement readiness.”

Plan sponsors should offer “unbiased education and tools on a wide array of topics, including managing daily finances, debt mitigation and life events, like caregiving, saving for a home or reducing debt, particularly student loan debt—delivered digitally and through seminars and webinars,” Schmitt says. “The tools could include one for budgeting, another to help calculate life insurance, and yet another to help calculate retirement income.” She notes that 17% of people who use Prudential’s retirement income calculator increase their contributions on the same day.

Schmitt adds that it is also important for a holistic retirement program to offer employees access to financial wellness coaches who can provide one-on-one support on retirement planning, emergency savings and more. She says it is helpful to allow individuals to invite their spouses, partners and children to participate, to make it a financial conversation for the whole family.

Mark Smrecek, senior director and financial well-being market leader at Willis Towers Watson, agrees that one-on-one counseling should be at the center of a sound holistic retirement program, as it is the most effective way to help individuals get their financial houses in order. “The counseling should extend outside of the wealth building space, which means looking at individuals’ current finances to help them with their day-to-day cash management. That will then put them in a better position to support their long-term goals, including retirement savings.”

Schmitt notes that a truly holistic retirement program should include “access to a guaranteed income solution. This is critical in helping participants convert their retirement savings into a steady, predictable income stream in retirement.”

For those plan sponsors who are just getting started in designing and offering a holistic retirement program, Schmitt says, a good place to begin is to get an overview of the health of their retirement plan. Later this year, Prudential will be rolling out such a tool, called Plan Health 360. “It will leverage data, science and actuarial insights to evaluate the health of an employer’s plan, including those benefits held away from Prudential, to get a 360-degree view of the total benefits offering,” she says. “It plays back personalized recommendations that will help plans improve organizational and individual wellness with actionable insights. An assessment like this is a great way for plan sponsors to get an objective view of their plan’s health and identify potential ‘gaps’ like guaranteed income or student loan assistance that, when closed, can help them achieve a more holistic retirement plan.”

Smrecek says there is an enormous need for holistic retirement programs, as more people today are living paycheck to paycheck than ever before. And he adds that the benefits of offering such a program are tremendous for companies, as they reduce absenteeism, increase workers’ productivity and lower health care costs.

Levy concurs on that point, saying, “More plan sponsors are now realizing the benefits to them of offering a holistic retirement program that empowers their employees to manage their financial affairs in a good, solid, long-term way that reduces their stress. A number of studies have shown that if people are under financial stress, it affects their work behavior and, potentially, other issues they bring into the workplace. Astute employers now understand that a taking a holistic approach to the mental, financial and physical wellness of their employees is important not just for their workers—but also for their bottom line. It isn’t enough to take a rifle-shot approach.”

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