EBSA Answers QDIA Questions

The revised section “provides that relief is available with respect to an investment product or fund designed to preserve principal; provide a rate of return generally consistent with that earned on intermediate investment-grade bonds; and provide liquidity for withdrawals by participants and beneficiaries, including transfers to other investment alternatives,” Doyle writes.

In addition, Doyle writes, “no fees or surrender charges can be imposed in connection with withdrawals from the product or fund initiated by a participant or beneficiary, and the product or fund must invest primarily in investment products that are backed by state or federally regulated financial institutions… Alternatively, the principal and accrued interest on the product or fund may be backed by contracts issued by such institutions.”

The rules affect employers with participants in 401(k) plans and similar plans who fail to tell plan administrators how they want their assets allocated.

Rather than putting the assets in savings accounts or other low-risk but low-return options, administrators are supposed to put the assets in QDIAs.

QDIAs cannot be true fixed-income investments. They must be balanced funds, “target date” funds or other funds that give participants some chance to share in gains in the stock and bond markets.