Fact Sheet 

U.S. Department of Labor 

Employee Benefits Security Administration 

April 2008 

Regulation Relating to Qualified Default Investment Alternatives in Participant-Directed 

Individual Account Plans 

Background 

• Approximately one-third of eligible workers do not participate in their employers’ 401(k)-type plans. 

Studies suggest that automatic enrollment plans (in which workers “opt-out” of plan participation 

rather than “opt-in”) could reduce this rate to less than 10%, significantly increasing retirement 

savings. 

• The Pension Protection Act (PPA) President Bush signed into law in 2006 removed impediments to 

employers adopting automatic enrollment, including employer fears about legal liability for market 

fluctuations and the applicability of state wage withholding laws. 

• These impediments had prevented many employers from adopting automatic enrollment, or had led 

them to invest workers’ contributions in low-risk, low-return “default” investments. 

• The PPA directed the Department of Labor to issue a regulation to assist employers in selecting default 

investments that best serve the retirement needs of workers who do not direct their own investments. 

• The Department issued a proposed regulation on September 27, 2006, and received more than 120 

public comments. After considering the many issues raised by commenters, the Department’s 

Employee Benefits Security Administration promulgated the final regulation on October 24, 2007. 

Overview of Final Regulation 

• By facilitating the adoption of automatic enrollment plans, and by encouraging investments 

appropriate for long-term retirement savings, the Department estimates the rule will result in between 

$70 billion and $134 billion in additional retirement savings by 2034. 

• The final regulation provides the following conditions that must be satisfied in order to obtain safe 

harbor relief from fiduciary liability for investment outcomes: 

3⁄4 Assets must be invested in a “qualified default investment alternative” (QDIA) as defined in the 

regulation. 

3⁄4 Participants and beneficiaries must have been given an opportunity to provide investment 

direction, but have not done so. 

3⁄4 A notice generally must be furnished to participants and beneficiaries in advance of the first 

investment in the QDIA and annually thereafter. The rule describes the information that must 

be included in the notice. 

3⁄4 Material, such as investment prospectuses, provided to the plan for the QDIA must be furnished 

to participants and beneficiaries. 

3⁄4 Participants and beneficiaries must have the opportunity to direct investments out of a QDIA as 

frequently as from other plan investments, but at least quarterly. 

3⁄4 The rule limits the fees that can be imposed on a participant who opts out of participation in the 

plan or who decides to direct their investments. 

3⁄4 The plan must offer a “broad range of investment alternatives” as defined in the Department’s 

regulation under section 404(c) of ERISA. 

• The final regulation does not absolve fiduciaries of the duty to prudently select and monitor QDIAs. 

Qualified Default Investment Alternatives 

• The final regulation does not identify specific investment products – rather, it describes mechanisms 

for investing participant contributions. The intent is to ensure that an investment qualifying as a QDIA 

is appropriate as a single investment capable of meeting a worker’s long-term retirement savings 

needs. The final regulation identifies two individually-based mechanisms and one group-based 

mechanism – it also provides for a short-term investment for administrative convenience. 
• The final regulation provides for four types of QDIAs: 

3⁄4 A product with a mix of investments that takes into account the individual’s age or retirement 

date (an example of such a product could be a life-cycle or targeted-retirement-date fund); 

3⁄4 An investment service that allocates contributions among existing plan options to provide an 

asset mix that takes into account the individual’s age or retirement date (an example of such a 

service could be a professionally-managed account); 

3⁄4 A product with a mix of investments that takes into account the characteristics of the group of 

employees as a whole, rather than each individual (an example of such a product could be a 

balanced fund); and 

3⁄4 A capital preservation product for only the first 120 days of participation (an option for plan 

sponsors wishing to simplify administration if workers opt-out of participation before incurring 

an additional tax). 

• A QDIA must either be managed by an investment manager, plan trustee, plan sponsor or a 

committee comprised primarily of employees of the plan sponsor that is a named fiduciary, or be an 

investment company registered under the Investment Company Act of 1940.

• A QDIA generally may not invest participant contributions in employer securities. 

Other Significant Provisions 

• Recognizing that some plan sponsors adopted stable value products as their default investment prior 

to passage of the Pension Protection Act and this final regulation, the regulation provides a transition 

rule. The regulation “grandfathers” these arrangements by providing relief for contributions invested 

in stable value products prior to the effective date of the final rule. The transition rule does not 

provide relief for future contributions to stable value products. 

• The final regulation clarifies that a QDIA may be offered through variable annuity contracts or other 

pooled investment funds. 

• The rule provides that ERISA supersedes any State law that would prohibit or restrict automatic 

contribution arrangements, regardless of whether such automatic contribution arrangements qualify 

for the safe harbor. 

A copy of the regulation is available on the agency’s Web site at www.dol.gov/ebsa under “Laws and 

Regulations.”