With the Department of Labor (DOL) release of its Qualified Default Investment Alternatives (QDIAs) regulations, plan sponsors may now wish to offer a default investment option better suited to long-term retirement plan investing consistent with the new regulations’ requirements. The DOL has designated the following types of vehicles as QDIAs:
Stable value type funds are given only short-term QDIA status under the regulations and may only be used for up to the first 120 days after a participant’s first contribution. After 120 days, the plan must transfer the amounts to another QDIA.
While most participants make investment elections when enrolling in their retirement plan, a small number of participants do not. Plan sponsors typically address this issue by establishing a “default” investment option in which contributions are invested when a participant does not make an investment election. The newly released DOL regulations are intended to provide relief to ERISA plan fiduciaries who invest assets in a QDIA on behalf of plan participants who fail to provide investment direction.
Governmental plans are technically not subject to ERISA regulations. However, governmental plan sponsors have fiduciary responsibilities to plan participants and may look to the DOL’s regulations and guidance as a reliable guide with respect to the scope of a governmental employer’s fiduciary duties. As a result, compliance with the DOL regulations may also help reduce fiduciary risk for governmental and other non-ERISA plan sponsors. As is true with any investment within a retirement plan, plan fiduciaries are ultimately responsible for prudently selecting and monitoring any QDIA used as a default option within their plans.
In line with industry practices pre-dating the QDIA regulations, ICMA-RC’s current investment default option (the VantageTrust PLUS Fund) was chosen with “capital preservation” in mind. A stable value investment objective was considered to be the safest default investment option for plan sponsors and participants.
Consistent with the new QDIA regulations, ICMA-RC is planning to change its standard plan default investment option from the VantageTrust PLUS Fund to the Vantagepoint Milestone Funds* for contributions from participants who have not provided investment direction. Employers will, however, be given the option of continuing to use the PLUS Fund as a default option if so desired.
ICMA-RC chose the Vantagepoint Milestone Funds as the new standard plan default investment option because these funds meet the QDIA requirements and provide a more diversified investment for participants’ contributions, an option that may help them better reach their retirement goals. Participants without an investment election will have their contributions directed into an appropriate Milestone Fund based upon their age.
Each Vantagepoint Milestone Fund invests in a professionally-selected combination of funds that are believed to be appropriate for the time remaining until the participant’s target withdrawal or retirement date.
Over time, the asset allocation of each Milestone Fund is “aged” to reflect an increasingly conservative asset mix. In this way, the overall risk associated with each fund is reduced as participants approach the target retirement date.
* Please be advised that with "Fund of Funds" arrangements, additional under¬lying fees may apply. Please consult the prospectus for details.