Combined QDIA and automatic enrollment notice with ADP/ACP safe harbor option

Qualified default investment alternatives (QDIAs) can relieve employers from fiduciary liability of participant losses in default investments. We created this combined sample notice because many plans offer QDIAs along with automatic enrollment and ADP/ACP safe harbor status.

QDIAs

A default investment is needed whenever a participant has the opportunity to select his or her own retirement plan investment elections but does not do so. When this occurs, contributions or assets can be directed into a default investment. A default is also needed when participants don’t select investments for nonelective contributions or rollovers into the plan.

What investments are QDIAs?

The Department of Labor identifies three general types of QDIAs that provide growth potential and are considered long-term QDIAs:

  1. Target date (or lifecycle) funds
  2. Balanced funds
  3. Professionally managed accounts

Participants must be notified

To qualify for fiduciary relief, you’ll need to notify eligible participants and beneficiaries about the plan’s default investment. The notification should include a description of the QDIA and should outline participants’ rights with regard to the investment.

Notification needs to be given:

  • Initially, when the investment is first designated as a QDIA — At least 30 days before the first contribution is made
  • Individually to newly eligible participants — At least 30 days before their contributions are first directed into the QDIA
  • Annually — At least 30 days before the beginning of the plan year to all affected participants

Automatic enrollment

Plans that feature automatic enrollment are required to provide notification to eligible employees. The notice must include details about how automatic enrollment works and how employees can make a different election or opt out of the plan.

To meet the notification requirements, send out this notice:

  • Initially — to each employee subject to automatic enrollment, at least 30 days before automatic deferrals would begin; and
  • Annually — to all affected participants 30 to 90 days before the beginning of each plan year.

ADP/ACP safe harbor status

Plans that meet ADP/ACP safe harbor requirements with automatic enrollment can satisfy certain nondiscrimination tests.

For you to meet notification requirements, all eligible employees must receive information about the plan’s safe harbor contribution and vesting details before the beginning of each plan year. If the plan features automatic enrollment, the notice must describe the default investment and explain the right to opt out and change contribution amounts.

According to the IRS, notice may be given 30 to 90 days before the beginning of the plan year. For a newly established 401(k) plan, notice can be given up to the first day of the first plan year. If the plan is amended mid-year, an updated notice summarizing the change may be required to be distributed 30 to 90 days before the effective date.

Find out more

Refer to our sample combined QDIA and automatic enrollment notice with ADP/ACP safe harbor option or contact your Retirement Plan Coordinator, who can also help you check if your plan’s current default (or defaults) is a QDIA.

Learn more about delivering this information electronically.

For general information about QDIAs, visit the IRS website.

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