Definition
ERISA section 404(c)(5) and 29 CFR 2550.404c-5 let a fiduciary avoid liability for investment outcomes when a participant who failed to give direction is placed in a qualified default investment alternative. The regulation recognizes life-cycle or target-retirement-date funds, balanced funds, and managed accounts. A capital preservation product counts as a QDIA only for the first 120 days after a participant's first elective contribution under an automatic enrollment arrangement. Participants must receive a notice at least 30 days before the plan eligibility date or first QDIA investment, and an annual notice at least 30 days before each plan year.
Why it matters in an audit or review
Plan auditors read the investment policy and plan document, test that automatic enrollment defaults went to a QDIA, and check participant notices. Sponsors that cannot show notices lose the relief.
Example
Illustrative: a plan automatically enrolls a new hire who makes no election. The contributions go into the target date fund closest to the employee's expected retirement year, and the sponsor keeps the notice delivery log as evidence.
Common mistakes
- Using a stable value fund as a long-term default.
- Missing the annual notice.
Sources
- ERISA section 404(c)(5), 29 U.S.C. 1104(c)(5)
- 29 CFR 2550.404c-5, fiduciary relief for investments in QDIAs: https://www.ecfr.gov/current/title-29/section-2550.404c-5
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error