QDIA - Determination of Who Must Receive Notice

[BeanCounterBlues]

Regarding determining who must receive a notice, my understanding is that anyone who is defaulted must receive the notice (annually) and that it's okay to give the notice at least 30 days in advance of the initial entry date (the first point that ee becomes eligible to participate) because such an ee MIGHT become a default enrollee.

What are recommendations for example, for a hypothetical plan w/ 500 active participants, 300 who are eligible but not contributing and 1,500 employeees. Thus 700 not eligible due to age and service, but will become eligible eventually unless they first terminate.

Of the 500, assume it's estimated that 75 are defaulted, but the employer is not certain which employees. The employer could of course log onto the investment company's website and participant-by-participant determine who resides in QDIA and who does not, in order to determine who to give the annual notice to.

The first year, this would be more work because all employees w/ accounts would have to be "tested." From thereon out, it would simply be a matter of checking who that was added in the last year as contributing participant, that was also defaulted. Not so much work in second and subsequent years.

You are a TPA and you explain this to your client. Client states that is too much work, but does not want to pay the TPA to do the work (TPA is capable of doing the work in terms of time and resources). TPA however not happy to do the work w/o being paid. TPA discloses the notice research requirement but in turn states that the time will be billed, and is not able to procure permission from client to do the work (thus by default becomes the resposibility of the client - assume this is delineated in the services agreement).

Client asks if it would be okay to just give the notice to everyone >30 days prior to initial eligibility, and then annually to any one who has an account balance. This would certainly cause all who are required to have the notice, to have it.

However, I have heard that it is not considered wise to just pass out the notice on a blanket basis as requested by client in my hypothetical example.

What are your opinion(s) of distributing the notice as the client wishes to, in order to avoid the analysis that would be required in order to determine who actually is supposed to receive the notice? What are the inherent dangers of doing so?

Thank you.

[JanetM]

TPA should be able to do simple query to the data base and create a list of defaulted folks in pretty short and inexpensive order. If they can't I would find another TPA.

As to sending blanket notice to all I don't have an opinion, just an observation. Those who elect investments will look at it and say so what, I picked my investments. Those who were/will be defaulted will say oh yeah, I should make a decision.

[John Feldt ERPA CPC QPA]

I agree with JanetM.

They would have to do that notice annually then. I don't see a problem with that. All it does is give them 404(c )(5) protection for those who were defaulted. If they know what their default fund has been, how much time would it take to see which participants still have any money in that investment? Of course some may have chosen that investment too, but I see no problem with giving a QDIA notice to everyone in the fund, as long as the wording in the notice is good.

Assuming the default fund is truly a QDIA and rest of 404(c ) is satisfied, then you have fiduciary protection against investment return complaints related to the default fund; but you are only protected from participants who were defaulted into that fund as long as they were given the QDIA notice. Thus, their desire to get one out to everyone who might have been defaulted.

On the flip-side, if they don't give each of those defaulted participants the QDIA notice, the fiduciary does not have 404(c )(5) protection. Instead, the normal ERISA prudency rules apply. Don't they feel comfortable that their default fund has been prudent enough? Does the cost of giving out this QDIA notice outweigh the risk associated to a participant complaint about the investment return?

Also, IMHO, I think the cost of gaining this additional fiduciary protection should probably not be charged to the participant's accounts (the plan assets), since the plan assets are for the benefit of the participants and beneficiaries. I don't see exactly how those funds could be used to provide protection to the plan fiduciaries.

[Peter Gulia]

Without considering anything of what the plan fiduciaries ought to be thinking about, might the TPA (assuming it’s confident that it’s a non-fiduciary) choose to provide the service, if paid for, of sending whatever writing the plan administrator has composed to whatever audience it instructs - while carefully reminding the client that the TPA hadn’t been asked to, and didn’t, advise the client about any effects of delivering that writing.

Your query asks: “What are the inherent dangers of doing [a notice the way the client suggests]? If the “client” already has said that it doesn’t want to pay for records work, how likely is it that they’ll pay for advice?

Please understand that this post doesn’t express a view about to whom a default-investment notice should be sent or what a notice should or shouldn’t say. That’s a set of questions that a plan fiduciary should carefully consider by prudently considering the facts, circumstances, expenses, and needs of a particular plan. The solution that’s the right answer for one particular plan might not be for a different plan.

[BeanCounterBlues]

Thank you all for your thoughtful responses. The main question I have is, is there any problem w/ giving the notice to all elig ee's (those who are elig to participate whether or not defaulted) to avoid spending time determining who actually has to receive it. Assume that the recordkeeper doesn't have a data base query that will permit easy ID of those in QDIA. Assume that determining who is eligible is an easy two-second query. Assume client doesn't want to switch recordkeepers.

Determining who is in QDIA will be much work, client doesn't want to pay TPA for the work (TPA and recordkeeper are separate and distinct unrelated entities). Assume TPA intends to draft the required notice. 401k client then is resposible for distributing it.

Right or wrong, assume client won't bother to distribute the notice unless TPA gives client list of who is supposed to receive it. A list of eligible ee's (defaulted and not) is two second 'no charge' job. Determining who is actually in QDIA is lengthy proposition client is not willing to pay for. TPA is trying to find a way to help the client benefit from QDIA w/o having to spend unnecessary fees to do it.

An esteemed ERISA atty recently stated it WOULD be important to give the notice only to those that are really supposed to receive it. But didn't really state "why." Thank you for any further opinions.

[John Feldt ERPA CPC QPA]

"... is there any problem w/ giving the notice to all elig ee's (those who are elig to participate whether or not defaulted) to avoid spending time determining who actually has to receive it."

I can find no prohibition from doing exactly that.

[Tom Poje]

during the ASPPA webcast the other day, the individual from the DOL recomended that all participants receive the notice the 'first' year, one of the reasons being it gives 'pre-emption' relief. after that, only provided notice to new ees or those that have default investment