What Does QDIA Stand For?

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What does QDIA stand for?

QDIA stands for “Qualified Default Investment Alternative”.

What is a QDIA?

Recognizing the need to help workers save more for retirement, Congress passed The Pension Protection Act (PPA) in 2006. A key provision of the PPA is the creation of the Qualified Default Investment Alternative (QDIA), a name given to certain types of investment services that can be used by employers to provide retirement account management to their employees. But as a result, those employers who do not implement a QDIA may be legally responsible if their retirement plan fails to produce adequate results for participants.

QDIAs are intended to help ensure that plan participants who may not be comfortable or knowledgeable about making investment decisions are invested in well diversified investment portfolios with appropriate time horizons.

Generally, a QDIA may not invest participant contributions in employer securities. A QDIA can be managed only by an investment manager or plan trustee under ERISA, a plan sponsor who is a named fiduciary or an investment company registered under the Investment Company Act of 1940.

What does a QDIA provide?

ERISA provides relief from liability for investment outcomes to fiduciaries of individual account plans that allow participants to exercise control over the investment of assets in their plan accounts.

The regulation deems a participant to have exercised control over assets in his or her account if, in the absence of investment direction from the participant, the plan fiduciary invests the assets in a QDIA. Also, account assets of participants who have not provided an affirmative investment direction are invested in a QDIA. As well as participants that have been given an opportunity to affirmatively direct their investments, but failed to do so.

QDIA may be one of the following:

  • Life-cycle or targeted-retirement-date fund.
  • Balanced fund or Balanced Allocation (must be considered suitable for the “Plan”)
  • Professionally managed account.