July 2, 2012

Many Happy Returns: Through QDIAs, it is win-win for sponsors and participants

Los Angeles partner Fred Reish's monthly column, "Many Happy Returns" in PLANSPONSOR Magazine discusses that participants in 401(k) plans need to make three fundamental decisions: Should I participate? How much should I defer? And how should I invest?

Fred notes that participants are expected to either select among the plan’s investments to craft portfolios in their accounts or to select professionally designed portfolios. However, most participants don’t know how to construct portfolios.

Fred also discusses that when plans switched providers, most opted to ‘map’ participants into investments on the new platform. When mapping, fiduciaries select investments from the new provider and then move participants’ accounts to the similar investments in direct proportion to their old investments.

A better alternative to mapping – Fiduciaries should consider moving participants into a qualified default investment or QDIA. If a plan gives participants the opportunity to direct their investments on the new platform, and if the QDIA requirements are satisfied, the fiduciaries will benefit from the QDIA safe harbor.

The Faegre Drinker Biddle & Reath LLP website uses cookies to make your browsing experience as useful as possible. In order to have the full site experience, keep cookies enabled on your web browser. By browsing our site with cookies enabled, you are agreeing to their use. Review Faegre Drinker Biddle & Reath LLP's cookies information for more details.