QDIA Question - Age Brackets for Default Investment

[52626]

Normal Retirement Age is later of 55 or 5 years participation. Participant directed 401(k) with a Profit Sharing Allocation. If there is no investment election on file, the Profit Sharing is invested in the Target Date Fund closes to NRA.

Question - According to the QDIA the Target Date Funds are based on the participant's 65th birthday. Since NRA is 55 do the Target Date age brackets need to be based on age 55 vs 65??

Thanks

[WCC]

this information may be helpful. I think you have a choice to use NRA or life expectancy or another prudent method.

§ 2550.404c-5 Fiduciary relief for investments in qualified default investment alternatives.

(4) Constitutes one of the following:

(i) An investment fund product or model portfolio that applies generally accepted investment theories, is diversified so as to minimize the risk of large losses and that is designed to provide varying degrees of long-term appreciation and capital preservation through a mix of equity and fixed income exposures based on the participant's age, target retirement date (such as normal retirement age under the plan) or life expectancy. Such products and portfolios change their asset allocations and associated risk levels over time with the objective of becoming more conservative (i.e., decreasing risk of losses) with increasing age. For purposes of this paragraph (e)(4)(i), asset allocation decisions for such products and portfolios are not required to take into account risk tolerances, investments or other preferences of an individual participant. An example of such a fund or portfolio may be a “life-cycle” or “targeted-retirement-date” fund or account.

[Bird]

Interesting. I see what it says but to me, using 55 as NRA is just a way to allow participants to get money out and is not indicative of an expected retirement date. I'd hang my hat on the "such as" qualifier and use 65...hard to imagine anyone caring.

[Peter Gulia]

For an individual-account plan, a plan's normal retirement age based on ERISA section 3(24) might have little or no effect on when people "retire" or begin a drawdown of the retirement-savings account.

I'm aware of one employer/fiduciary that, for a non-instructing participant, sets the default target-year fund as the one labeled to "mature" when the participant would attain age 70.

The employer's evidence shows a trend of its people not leaving work until 75 or 76 (and many of those then working elsewhere), but the fiduciary set the target so the fund would mature before a participant might be required to begin a minimum distribution.