QDIA notices--sent to whom?

[BG5150]

Do terminated people with balances have to get the QDIA notice, too? Or just the people currently employed?

[Kevin C]

2550.404c-5©(3) The participant or beneficiary on whose behalf an investment in a qualified default investment alternative may be made is furnished a notice that meets the requirements of paragraph (d) of this section:

I read that as saying that only those who were defaulted into the QDIA or who may have their investments defaulted into the QDIA must receive the notice. That would be everyone who has not made an investment election. It may be easier to give the notice to everyone instead of trying to determine who is required to receive it.

If a terminated participant was defaulted into the QDIA, I think they have to get the annual notice. I don't see anything that provides for different treatment based on active or terminated status.

[rosskeene]

How do you figure that a terminated participant with no prospect for a future contribution is someone "on whose behalf an investment in a qualified default investment alternative may be made"? I would read the requirement to only apply to participants who will have QDIA investments made on their behalf on an ongoing basis. Therefore, a terminated participant with no further contributions being made need not receive the annual notice. Similarly, a participant who has made investment elections with respect to future contributions but has not directed the investment of funds previously defaulted to the QDIA, need not get the annual notice. Is there some other guidance that tells me I'm wrong?

[Kevin C]

I don't recall any additional guidance in the year since my post. I tend to be conservative with my interpretations where the guidance isn't clear-cut. You are welcome to follow your own interpretation. Will your QDIA possibly have reinvested interest, dividends, capital gains, or proceeds from investment related lawsuit settlements?

The required content of the notice contains information that is useful to terminated participants who never made an investment election for all or part of their balance. I'd rather be safe and send them the notice.

§2550.404c-5(d) Notice. The notice required by paragraph ©(3) of this section shall be written in a manner calculated to be understood by the average plan participant and shall contain the following:

(1) A description of the circumstances under which assets in the individual account of a participant or beneficiary may be invested on behalf of the participant or beneficiary in a qualified default investment alternative; and, if applicable, an explanation of the circumstances under which elective contributions will be made on behalf of a participant, the percentage of such contributions, and the right of the participant to elect not to have such contributions made on the participant's behalf (or to elect to have such contributions made at a different percentage);

(2) An explanation of the right of participants and beneficiaries to direct the investment of assets in their individual accounts;

(3) A description of the qualified default investment alternative, including a description of the investment objectives, risk and return characteristics (if applicable), and fees and expenses attendant to the investment alternative;

(4) A description of the right of the participants and beneficiaries on whose behalf assets are invested in a qualified default investment alternative to direct the investment of those assets to any other investment alternative under the plan, including a description of any applicable restrictions, fees or expenses in connection with such transfer; and

(5) An explanation of where the participants and beneficiaries can obtain investment information concerning the other investment alternatives available under the plan.