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COLLECTED WISDOM™ on Qualified Default Investment Alternative

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Coming Soon to a 401k Plan Near You: Personalized Target Date Accounts

Managed accounts are the second most popular choice of QDIA. But before you switch to a managed account you should consider an emerging disruptive innovation that combines managed accounts with TDFs, providing the better characteristics of both. We call this innovation Personalized Target Date Accounts.

Source: 401kspecialistmag.com, November 2022

Evolution of the QDIA. Is Your Plan Due for a Review?

A QDIA review can be looked at as a gateway for your plan committee to clarify plan objectives. This article encourages plan sponsors to lift their heads and consider (or reconsider as the case may be) if your committee is due for a deeper look at your QDIA given marketplace evolution and changing plan needs.

Source: Planpilot.com, October 2022

New Wave of ERISA Class Actions Accuse Fiduciaries Of 'Imprudently' Using Low-Fee, High-Rated Funds, Like Blackrock TDFs

Retirement plan sponsors are fake fiduciaries if they offer cheap, highly rated funds from premium brands in 401k plans without factoring in fund performance, according to a fresh wave of ERISA class action cases. Most of the 11 outstanding class actions allege that plan sponsors chose BlackRock LifePath target-date funds as their default 401k option simply because they had the superficial markings of a fiduciary process rather than engaging in an authentic one.

Source: Riabiz.com, September 2022

What's Next for QDIA?

More than 15 years after the passage of the Pension Protection Act of 2006, Qualified Default Investment Alternatives and target-date funds are now a core offering for many plan sponsors. While target-date innovation may have slowed down in recent years, interesting things are happening elsewhere in the world of QDIAs.

Source: Captrust.com, June 2022

Bipartisan Bill Would Allow Annuities as Default Option

Key members of the House of Representatives have reintroduced legislation to allow retirement plan sponsors to provide annuities as a default option in their DC plans.

Source: Asppa.org, February 2022

Understanding Default Investments: A Focus on Target-Date Funds

The DOL doesn't mandate which types of plans should use which types of QDIA solutions. However, there are some best practice considerations to make when determining which QDIA structure may work best for your plan. Target-date funds have become the default of defaults, meaning the most frequently used solution for plan sponsors. It falls in a sweet spot of complexity/customization/cost. This article walks plan sponsors through all QDIA solutions with a special focus on target-date funds.

Source: Multnomahgroup.com, February 2022

Seeing the Bigger QDIA Picture

A close look at selecting and evaluating qualified default investment alternatives forces some questions about the value an adviser can add to the process. For instance, though advisers may be good at helping to craft custom funds, this might not always be appropriate. Simply put, there are so many different low-cost, off-the-shelf solutions that most plan sponsors can typically find one that meets their needs.

Source: Planadviser.com, July 2021

Plan Sponsor Views on Adopting Dynamic QDIAs

The DCIIA Retirement Research Center completed a project in late 2020 focused on investments in DC plans, specifically the plan sponsor's use of the dynamic or hybrid qualified default investment alternative. The dynamic QDIA can be defined as an investment option that starts a participant off in one investment product or solution and, upon reaching a certain threshold, automatically transitions the participant into a second, more retirement-focused product or solution. This structure is the focus of this paper.

Source: Ymaws.com, May 2021

The All-Out Battle Over the 401k Default Option

The fight for the 401k default option, like the competition to be a plan's recordkeeper or adviser, could change the largely cooperative DCIO landscape.

Source: Investmentnews.com (registration may be required), May 2021

A Review of QDIA Regulations

Qualified Default Investment Alternatives are soluble options to create portfolio growth for DC plan participants while protecting plan fiduciaries. 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 QDIAs.

Source: Plansponsor.com, February 2021

Choosing a QDIA Under the Final Rule Governing the Selection of Plan Investments

The DOL issued a final rule that amends the long-standing regulations that govern the selection of retirement plan investments by fiduciaries. One of the provisions is a prohibition on the use of an ESG fund as a QDIA. Plan fiduciaries that choose a fund that involves ESG screening strategies are taking a risk that the fund is not a permissible QDIA.

Source: Boutwellfay.com, December 2020

What to Consider When Selecting a QDIA

When selecting a QDIA, there are many variables to consider. This paper is the third in a series of papers and presents the perspectives of managed accounts providers and target-date fund providers as well as investment consultants and ERISA counsel where relevant. The paper poses several questions that a typical committee might ask when evaluating a QDIA, whether the QDIA is a professionally managed account program or one composed of target-date funds.

Source: Ymaws.com, November 2020

DOL Shifts Focus From ESG to Pecuniary Factors in Final Rule

The Final Rule requires that fiduciaries evaluate investment opportunities based upon pecuniary factors. However, if fiduciaries are unable to distinguish investments based on pecuniary factors, the Final Rule permits fiduciaries to consider non-pecuniary factors as a tie-breaker provided that they comply with the Final Rule's documentation requirement. Like the Proposed Rule, the Final Rule includes restrictive conditions for investments used as a plan's qualified default investment alternative. This article describes the Final Rule's key features, including notable differences from the Proposed Rule.

Source: Groom.com, November 2020

QDIAs the Best Place for Participant Assets During Downturns

QDIAs keep DC plan participants on a path for growth, but the current market volatility plants seeds of new ideas about their construction going forward.

Source: Plansponsor.com, May 2020

How to Evolve Default Options for Retirees in DC Plans

Current target-date structures tend to manage competing objectives through trade-offs. Sponsors are generally responsible for determining which target-date design makes sense for their participants, given demographics, behaviors, and fund objectives. This is a challenging task, and while the industry has developed most of the elements of a more-complete retirement solution, they have yet to broadly create more versatile and complete forms of QDIAs. On its own, change occurs slowly, so as an industry, we need to encourage progress by combining these existing components into more useful solutions.

Source: Georgetown.edu, December 2019

Room for More Innovation in the QDIA Sphere

The domination of TDFs poses the question of whether participants and plan sponsors can feel confident in other types of funds approved as QDIAs and whether the retirement industry can innovate TDF properties to deliver customized retirement solutions that participants need. According to Daniel Uquillas, senior analyst at Cerulli Associates, QDIAs are seeing growth in the market, with several trends sprouting in product innovation. Uquillas notes the recent movement towards dynamic target-date solutions, or hybrid QDIAs.

Source: Plansponsor.com, November 2019

Innovation Is Key to Long-Term Success in the QDIA Space

Target-date products continue to dominate the Qualified Defined Investment Alternatives (QDIA) landscape; however, providers must innovate beyond current norms to deliver the guidance and custom retirement solutions that participants need, according to the latest research from Cerulli Associates. Providers should look for ways to improve upon engagement strategies, customization abilities, and retirement income options, all in the context of promoting broader financial wellness.

Source: Cerulli.com, October 2019

How Sticky is Your Plan's Default Investment?

There's been a significant increase in the use of "intelligent," or diversified, investment defaults in 401k plans over the past 10 years. Given the many positive effects that these default investments have had on investors, the authors wanted to study their stickiness, or rather, the likelihood that plan participants would initially accept the default and remain in it.

Source: Morningstar.com, May 2019

QDIA Evolution -- Moving Defined Contribution Plans Into the Future

With 81% of employers offering only defined contribution plans to new hires, the stakes have never been higher for DC plans to facilitate successful retirement outcomes for American workers. This will require coordination across plan design, investment design and communications. From an investment perspective, the qualified default investment alternative is the most direct way to impact retirement readiness given the increase in auto-features such as automatic enrollment (recent data show that 73% of plans automatically re-enroll versus 52% in 2009).

Source: Willistowerswatson.com, May 2019

Are Your Target-Date Funds Missing The Mark?

While the QDIA regulation provides a "safe harbor" that protects fiduciaries from liability for their decisions, it only applies if they comply with all the requirements of the regulation which requires prudently selecting and monitoring the investment used as the QDIA. Here are four indications it's time to thoroughly review your plan's TDF used as the QDIA.

Source: Greenspringadvisors.com, April 2019

How QDIAs Have Changed the Fiduciary Role of 401k Plan Sponsors

Target-date funds are the fastest growing segment on the 401k investment menu. In the more than ten years since they've become a QDIO staple in 401k plans, target-date funds have certainly changed the retirement prospects for employees. How have these investment vehicles changed the roles, responsibilities, and even the fiduciary liability of the plan sponsor?

Source: Fiduciarynews.com, March 2019

401k Investment Default Options for Employees

401k Investment Default Options for your Employees are arguably the most important investment decision a 401k or 403b plan can make as the default option or QDIA -- Qualified Default Investment Alternative. The advent of auto-enrollment results in most participants defaulting into their employer's QDIA, where a significant percentage of new contributions flow into this investment.

Source: 401ktv.com, February 2019

QDIA Lawsuits: A New Fiduciary Risk for 401k Plan Sponsors

Here's a new risk for plan sponsors to be aware of, you could be sued based on the qualified default investment alternative (QDIA) you choose for your retirement plan. For example, participants could claim you failed to fulfill your fiduciary duty if the plan's qualified default investment option -- typically a target-date fund -- doesn't deliver the expected outcomes.

Source: 401ktv.com, June 2018

Indexed Annuity Issuers Seek 401k Plan Default Investment Role

Two years ago, the DOL was fighting to put indexed annuities in the retirement services doghouse. Now, issuers are hoping they can persuade DOL officials to let managers of 401k plans and other types of defined contribution plans use indexed annuities as qualified default investment alternative (QDIA) options.

Source: Thinkadvisor.com, June 2018

The High Stakes of QDIA Selection

For plan sponsors, the tremendous growth in assets, changing market conditions and balancing the needs of younger and older participants complicates selection and monitoring of target-date funds. Advisors can help by bringing plan demographics to the discussion and looking at the distribution of ages and account balances of a plan population.

Source: Americancenturyblog.com, June 2018

Selecting the Optimal QDIA

With so many assets flowing into target-date funds, it is imperative that plan sponsors diligently select the glide path most appropriate for their participants. Chief Investment Officer for Hearst Corp. Roger Paschke and David Blanchett, head of retirement research for Morningstar Inc. offer a research-based case study on selecting a qualified default investment alternative for defined contribution plans.

Source: Planadviser.com, June 2018

A Decade After PPA and the QDIA Debate Continues

The transition period, from five years before retirement to five years after, is the most critical phase of lifecycle investing and potentially the most difficult to manage with a standard TDF glide path.

Source: Planadviser.com, August 2017

QDIAs...A Recipe for Fiduciary Protection

A Qualified Default Investment Alternative is a provision available to 401k and 403b plans that reduces the potential personal liability of plan fiduciaries while improving the ability of participants to build toward retirement. Since a QDIA offers advantages to plan sponsor and participants alike, one might wonder what would prevent an employer from implementing one.

Source: Alliantwealth.com, August 2017

How Hybrid QDIAs Could Be Beneficial to Participants

There are different ways the industry is defining hybrid qualified default investment alternatives. Whether structured as a hybrid QDIA or not, experts agree managed accounts can be complementary to TDFs in a DC plan's investment menu.

Source: Plansponsor.com, July 2017

Hybrids: The Next Generation of QDIA

Qualified Default Investment Alternatives (QDIAs) are a fairly recent invention but have already become a central component of the corporate defined contribution retirement system. Although target date funds have been the most popular choice to date, recently-introduced hybrid forms of QDIA represent a notable new variation.

Source: Russellinvestments.com, June 2017

Plan Sponsors, Approach Target-Date Funds With Caution

Even though the DOL has suggested that selecting a target-date fund with a lifetime income component as a plan's default investment alternative may be prudent, the protections afforded by ERISA 404(c) will not apply if the product does not meet all of the QDIA requirements. This means that a plan fiduciary will not be automatically insulated from liability for participants' investment losses by selecting this investment option as the default alternative.

Source: Alston.com, February 2017

DOL: Lifetime Income Can Be Part of Prudent QDIA

The DOL issued an information letter that indicated employer plan sponsors are entitled to use lifetime income products as a part of a prudent qualified default investment alternative (QDIA), even if the products contain certain liquidity and transferability restrictions.

Source: Blr.com, January 2017

Managed Accounts: The Future of Default Options in DC Plans?

Commenting on the dramatic growth of target-date funds, the head of retirement research for Morningstar blogging in the Wall Street Journal asks the obvious question: when will we move to more customized solutions? Managed accounts offer that option, but barriers include costs and engagement.

Source: 401ktv.com, January 2017

TDF With Annuity That Restricts Transfers May Be Prudent Default Investment (but not QDIA)

The DOL recently concluded that a target date fund with a fixed guaranteed annuity restricting transfers or withdrawals for a 12-month period does not meet the qualified default investment alternative requirements. But noting the need for lifetime income as a public policy issue, DOL said a fiduciary could prudently select a default investment that complies with all requirements of the QDIA regulation save the liquidity and transferability rules. Fiduciaries may be hard pressed, however, to select such an investment as a plan default investment because it does not protect them from liability for investing contributions on behalf of employees.

Source: Conduent.com, January 2017

Target-Date Funds With Annuities Can Be Prudent Default Investments

Target-date funds with annuities can now be considered prudent default investment options, so long as certain liquidity requirements are met, the Department of Labor said in informal guidance.

Source: Bna.com (registration may be required), January 2017

What is the Maximum Equity Exposure Allowed in TDFs as QDIAs?

The QDIA regulations do not establish fixed income or equity exposures necessary to satisfy the requirement for a mix within a QDIA, but an investment fund or product with zero fixed income would not qualify as a QDIA.

Source: Retirementlc.com, July 2016

The Devil May Be in the Default Option

In order to provide the highest level of protection to fiduciaries, the default option should be appropriately analyzed, selected and monitored. Increasingly, sponsors are signing up for managed accounts, rather than target-date funds or diversified balanced funds, as the default option.

Source: Pionline.com, June 2016

QDIA Fiduciary Red Flags 401k Plan Sponsors Must Look Out For

The only way to guard against excessive fiduciary liability exposure is to have a fully informed workforce. In addition, plan participants must be repeatedly notified of their QDIA exposure and reminded of their ability to opt out of the investment at any time. But, like the proverbial horse, you can lead employees to a periodic education meeting, but you can't get them to learn.

Source: Fiduciarynews.com, June 2016

Choosing Default Investment Alternatives for 401ks Requires Close Due Diligence

Target-date funds are the runaway top choice to serve as the default option for 401k plans. But successfully gathering assets doesn't necessarily mean that a TDF is the right choice for every plan's QDIA. It certainly doesn't mean that TDFs are well-suited for every plan participant, so plan fiduciaries should not act hastily in choosing a QDIA.

Source: Investmentnews.com (registration may be required), May 2016

Participants Show Troubling QDIA Behavior Trends

Target-date funds and other QDIAs are often thought of as set-it and forget-it investments, but new data from J.P. Morgan Asset Management highlights some troubling behaviors among participants invested in their plan's default.

Source: Plansponsor.com, January 2016

QDIAs Under the Pension Protection Act

The Department of Labor's final fiduciary rule could be released before the next presidential inauguration in January 2017. For some, it is a very ambitious time frame and raises a question about how they can do it in that time frame.

Source: Consultrms.com, September 2015

The Challenges of Picking a QDIA

A recent GAO report takes a look at the various factors plan sponsors consider when they pick and monitor default investments, and the results of their monitoring efforts, which hinge on plan-specific considerations.

Source: Planadviser.com, September 2015

Are Managed Accounts a Better QDIA?

The basic premise of a managed account is the construction of a completion portfolio with participants' defined contribution assets, built around their whole asset profile and individual circumstances. Paper posit that managed accounts, customized at the participant level, have the ability to improve retirement outcomes if designed and implemented appropriately.

Source: Towerswatson.com, June 2015

Helping Employers Choose Qualified Default Investments

Fiduciary responsibility requires the careful selection of default retirement investments. Benefit advisers can add value with knowledgeable advice on qualified default investment alternatives, including through the use of selection tools.

Source: Benefitnews.com, June 2015

Four Things You Need to Know About Default Funds

A growing number of retirement plan participants, and retirement plan assets, are being invested in the default option selected for the plan. The existence of default funds isn't exactly a new phenomenon. Arguably it's as old as that first participant enrollment form returned without the investment election section completed. Here are four things you should know about default funds.

Source: Napa-net.org, March 2015

Employee Demographics Play Role in QDIA Selection

Companies that sponsor 401k plans need to consider employee demographics when deciding which types of qualified default investment alternative to offer, according to research by Manning & Napier.

Source: Benefitnews.com, March 2015

Is Your QDIA Increasing Your Fiduciary Risk?

If a Qualified Default Investment Alternative is supposed to help employees, how can it increase your fiduciary risk? The QDIA is supposed to go under a due diligence screen similar to your other investments. This screen is your fiduciary liability unless you transfer the risk to a financial professional that takes on the risk of its selection, monitoring and replacement. Many financial professionals and the press say that the target date strategy is the most popular. They often then rush to recommend its use. However, what is it and what are the other choices?

Source: 401kadvisor.us, October 2014

The QDIA Decision: Does Your Strategy Align With Plan Goals and Demographics?

This paper is intended to discuss how plan demographics and sponsor goals may influence the QDIA selection process, and covers the following points: Selecting an appropriate type of QDIA in light of plan demographics and sponsor goals; If the fiduciary decides to use TDFs, selecting specific target date fund investment strategies that best fit plan demographics and sponsor goals; and, Given the DOL’s guidance for plan sponsors to consider custom glide path alternatives, the demographics that may suggest a need for customization.

Source: Manning-napier.com, September 2014

Qualified Default Investment Alternatives

A key provision of the PPA was providing a safe harbor for plan fiduciaries investing participant assets in certain types of default investment alternatives in the absence of participant investment direction. Article discusses the conditions must be met for fiduciary relief.

Source: Strategicbenefitservices.com, June 2014

Target-Date Strategies As a QDIA

The provisions of the Pension Protection Act of 2006 defined target-date funds as one of three types of QDIAs for use in qualified retirement plans. While the final regulations require plan fiduciaries to meet several technical and operational requirements to qualify for safe harbor protection, the following discusses the utilization of the Manning & Napier target-date options as QDIAs, and provides guidelines for translating individual participant birthdates into a Manning & Napier target-date option when target-date funds are being utilized as the default investment.

Source: Manning-Napier.com, June 2014

Safe Harbor Investments

When examining retirement plan design, sponsors naturally have many questions. What investments should be offered to plan participants? Are the participants legally protected? Are you, as a plan sponsor, legally protected? A decision that speaks to all of these questions is whether to choose a qualified default investment alternative or a non-QDIA investment as the default investment for plan participants.

Source: Plansponsor.com, July 2013

Fiduciary Implications: Using Re-enrollment to Improve Target-Date Fund Adoption

In light of the benefit to participants of using TDFs and the fiduciary protections offered by the QDIA rules, fiduciaries are well advised to add TDFs to the investment line-up and to take steps to cause as many participants as possible to be invested in those funds. This white paper discusses legal principles and industry practices, and then illustrate the advantages of using the re-enrollment process to provide the greatest protection for plan fiduciaries.

Source: Drinkerbiddle.com, June 2013

QDIA Q&A: A Resource for Plan Sponsors

A qualified default investment alternative, or QDIA, is intended to encourage investment of employee assets in appropriate vehicles for long-term retirement savings. This Q&A will help you understand how selecting QDIAs that comply with the Department of Labor regulations can reduce fiduciary liability for plan sponsors and help participants save for retirement.

Source: Invesco.com, October 2012

QDIAs and Affirmative Investment Elections

In Bidwell v. University Medical Center, Inc., the Sixth Circuit ruled that an employer was not liable for resulting financial losses when it transferred assets in participants' retirement plan accounts from a stable value fund to a Qualified Default Investment Alternative ("QDIA") even though the participants had previously elected the stable value fund.

Source: Bryan Cave, July 2012

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