The Employee Benefits Security Administration is giving more advice about default retirement plan investment options.
The new U.S. Department of Labor Qualified Deferred Investment Alternatives regulations, completed in October 2007, apply to 403(b) nonprofit retirement plans as well as to 401(k) plans, Robert Doyle, an official with the department’s Employee Benefits Security Administration, writes in EBSA Field Assistance Bulletin Number 2008-03.
Doyle also notes that a plan sponsor is responsible for selecting and monitoring a QDIA in a prudent manner even if the QDIA regulations relieve plan sponsors from liability for the QDIA investment results.
In another section of the bulletin, Doyle describes the kind of existing stable-value fund default investment options that qualify for “grandfathering.”
The Department of Labor has corrected the grandfather relief section of the completed regulations “to ensure broad application of this relief to stable-value products and funds,” Doyle writes in the bulletin.
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.