Following up on proposed rules for Qualified Default Investment Alternatives (“QDIAs”), which were discussed in detail in an October 2006 EmployNews Bulletin (link), the DOL released final QDIA regulations this week.  These regulations allow fiduciaries of retirement plans with participant-directed accounts to utilize the fiduciary safe harbor intended to relieve them of at least some fiduciary liability for selecting and maintaining “default” investment alternatives for participants who neglect to make their own investment elections.  Aimed primarily at 401(k) plans with “automatic enrollment” features but applicable to voluntary enrollment plans as well, the safe harbor is at least partly intended to increase plan participation and to discourage use of low-risk, low-return default investments.

Though the final regulations generally reiterate much of the proposed regulations, highlights of the final regulations include the following:

• They are effective December 24, 2007.  Thus, fiduciaries presumably can take advantage of the safe harbor by otherwise complying with the rules by such date.  Among other steps, this would involve providing the initial required advance notice no later than November 24, 2007 (at least 30 days in advance of any investment in a QDIA -- advance notice is also required at least 30 days prior to the beginning of any subsequent plan year).
• Acceptable QDIAs include lifecycle funds, balanced funds or professionally managed accounts.  They generally do not include stable value funds.  However, the final regulations do provide a “grandfather” transition rule for certain stable value arrangements, which, prospectively, also can be QDIAs with respect to participant contributions in the first 120 days following the participant’s first elective contribution.
• The safe harbor can be met without 30 days advance notice for immediately-enrolled, newly-hired employees if notice is provided at or before eligibility and the plan allows such employees to “unwind” contributions within 90 days.
• Participants “defaulted” to the QDIA must have the ability to transfer out of the QDIA into other available plan investments as frequently as other participants (which must be at least once within any three-month period).  The rules also prohibit the imposition of certain restrictions, fees and expenses during the first 90 days the participant is invested in the QDIA. 

Many plan fiduciaries have already selected default investment funds that are acceptable QDIAs, and they may desire to comply with the safe harbor.  Though such fiduciaries remain responsible for prudent selection and monitoring of such funds, compliance with the safe harbor may not require significant additional steps.  One of the most significant administrative burdens likely would be the initial and annual advance notices.  Given the additional protection for fiduciaries, complying with the safe harbor may be worth pursuing.