Here is your latest FYI: Employee Benefits
Update from Cindy Van Bogaert, Partner and Chair of the Employee
Benefits Practice Group at Boardman Law Firm LLP.
This FYI addresses ways employers can limit liability relating
to plan investments.
The IRS issued final regulations on Qualified Default Investment
Alternatives or "QDIAs." These QDIA regulations are valuable
to employers with participant-directed individual account retirement
plans, such as most 401(k) plans. Specifically, the QDIA approach
limits employer liability for selecting an investment for employees
who are given the opportunity, but fail to designate an investment
option for their accounts.
A QDIA generally is limited to either a balanced, life-cycle,
or targeted-retirement-date type fund or portfolio. There are special
rules for grandfathered funds and for short-term use of principal
preservation type investments.
What should employers do? To take advantage of the QDIA protection,
steps include, but are not limited to:
- Selecting a QDIA manager
and QDIA
- Reviewing plan investment options to
ensure that an adequate "broad range" of alternatives
is offered
- Reviewing fees and transfer restrictions
among investments so as not to exceed the QDIA standards
- Providing
employees with initial and annual notices meeting QDIA notice
requirements
- Distributing investment information
to employees
The QDIA regulations contain more detail and requirements.
Employers selecting QDIAs should engage in an objective, thorough,
and analytical process that involves consideration of the investment
fees and expenses and the quality of competing providers/investment
products. Analysis should include review for any improper conflicts
of interest or other pension "prohibited transactions." Proper
documentation of these steps is important. Employers also should
plan for ongoing monitoring of the QDIA and service providers.
These regulations are effective December 24, 2007. There are other
pension changes that should be noted. Although not limited to use
by "auto-enrollment" plans (plans which enroll a participant
unless he or she affirmatively opts out), QDIAs are an important
element for employers choosing to move to new auto-enrollment plan
designs which may be offered effective for plan years starting
in 2008. Also, for employer plans replacing existing investment
options, the Pension Protection Act of 2006 created protection
for employers that follow the steps for the new Qualified Change
in Investment Options. Employees are given required notice. If
they fail to designate a new fund, their existing investment can
be mapped into a new fund "reasonably" similar to the
one being replaced. This new provision is effective for plan years
starting in 2008.
This FYI is not legal advice. Individuals should seek advice based
on their particular circumstances from their own counsel. Nothing
in this FYI is intended to be used, and no information can be used,
for the purpose of avoiding penalties under the Internal Revenue
Code, or promoting, marketing, or recommending to another party
any transaction or matter addressed in this FYI.
If you have any questions or need assistance, please contact Cindy
Van Bogaert at (608) 281-7543 or cvanbog@boardmanlawfirm.com.
Would you like to have FYI: Employee Benefits Update sent
directly to your e-mail inbox? If so, please send your request,
with e-mail address, to Cindy Van Bogaert at cvanbog@boardmanlawfirm.com. |
