Jump to content

qdia for self directed


Recommended Posts

7 hours ago, Peter Gulia said:

TPApril, when you say there is no QDIA, do you mean there is no default investment alternative at all, or that there is a default but it is not a qualified default?

There is no default investment alternative whatsoever.  It's a small plan so new participants don't come along on an annual basis.

Link to comment
Share on other sites

7 hours ago, Peter Gulia said:

TPApril, when you say there is no QDIA, do you mean there is no default investment alternative at all, or that there is a default but it is not a qualified default?

There is no default investment alternative whatsoever.  It's a small plan so new participants don't come along on an annual basis.

Also, there is a profit sharing contribution set up.

Link to comment
Share on other sites

Consider asking your client this rhetorical question:

If the employer declared a nonelective contribution, paid it into the plan’s trust, and some portion of that contribution were allocable to a participant who had delivered no investment direction (and worse, might persist in furnishing no direction), how would the plan’s administrator and trustee direct the custodian to invest the contribution’s portion allocated to that participant’s account?

And how much responsibility would each fiduciary bear for that decision-making?

Also, there might be a default investment, even if it is not directly expressed in the plan’s governing documents. A broker-dealer’s securities account often has account terms that provide how to invest an amount for which the broker-dealer has received no other instruction.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

Link to comment
Share on other sites

TPApril, the QDIA rules are a way for any employer that otherwise has a 404(c) plan to be protected from liability with respect to employees who fail to take any active step to manage their own accounts. If you don't have a QDIA, and the money defaults into something that is not a QDIA, e.g. a money market fund, which for argument's sake I will treat as an imprudent investment for any significant period of time, ERISA 404(c)(5) (the QDIA rule enacted in 2006) can be interpreted as implying that you cannot claim that because the employee had the ability to choose how the money would be invested, but never exercised that choice, the employee has the same responsibility for the outcome under 404(c) as if they had made an active choice. The issue of whether the failure to actively make an investment election was, in effect, a passive election by the employee, was one that employers worried about, which is why employer groups and mutual fund providers lobbied Congress to get the QDIA rule added.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

Link to comment
Share on other sites

Peter, Luka - thanks.

I'm new to this plan, looking at it more closely, I see that there is actually a pooled account and participants who don't make an election just have their contribution put in there.

I kinda feel like this plan should not have been set up as a 404(c) plan to begin with, just a plan that allows self directed brokerage accounts.

Besides that I'll be checking to make sure that all participants have had the chance to open a brokerage account, I'm thinking to just remove the 404(c) indication in the restatement.

Link to comment
Share on other sites

10 hours ago, TPApril said:

I kinda feel like this plan should not have been set up as a 404(c) plan to begin with, just a plan that allows self directed brokerage accounts.

Besides that I'll be checking to make sure that all participants have had the chance to open a brokerage account, I'm thinking to just remove the 404(c) indication in the restatement.

Self-directed brokerage is generally a type of 404(c). If you remove the explicit claim to 404(c) from the document, the plan fiduciaries would in theory be responsible for the results of the participants' choices. A judge with common sense (or anyone with common sense) might not see it that way, but why take out the 404(c) language?

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

Link to comment
Share on other sites

11 hours ago, TPApril said:

I'm new to this plan, looking at it more closely, I see that there is actually a pooled account and participants who don't make an election just have their contribution put in there.

Is it a pooled account?  Or is there just one pooled account for the people who don't elect anything?  Is that even allowed?  What if one of them wants to open their own account?  You'll have to do some sort of mid-year valuation of the account and transfer out that person's portion.

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

Link to comment
Share on other sites

On 6/14/2022 at 8:41 AM, BG5150 said:

Is it a pooled account?  Or is there just one pooled account for the people who don't elect anything?  Is that even allowed?  What if one of them wants to open their own account?  You'll have to do some sort of mid-year valuation of the account and transfer out that person's portion.

You know how you get a plan from another TPA and you simply don't know what the daisy is going on? This plan has all participants with money in a Pooled account, and half the participants have an additional self directed account (my first post was wrong).  So apparently 404(c) only applies to those s/d accounts. I've simply never seen that. In fact, I haven't seen a plan with all self directed brokerage accounts that was designated as 404(c). I've only ever seen it with the traditional recordkeepers and there's always a QDIA attached.

I guess, Luke, we can leave it as is.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...