September 10, 2015

GAO Examines QDIAs in Participant-Directed §401(k) Plans

On September 4, the U.S. Government Accountability Office (GAO) issued a report on qualified default investment alternatives (QDIAs) in participant-directed §401(k) plans. The report found that based on industry surveys reviewed by GAO, the majority of plan sponsors use target date funds as their QDIAs. Among other findings based on GAO research, the report found that plan sponsors have questions about the rules governing QDIAs that could result in their making “suboptimal” investment choices for their plans.

QDIAs were created pursuant to the Pension Protection Act of 2006 to protect plan sponsors from the fiduciary liability associated with investing the contributions of participants who fail to make their own choices. Department of Labor (DOL) rules identify three types of investments that can be QDIAs and describe the requirements for each type:

  • Target date funds
  • Balanced funds
  • Managed accounts

GAO recommended that DOL assess the issues reported and implement corrective actions as appropriate.

GAO is a nonpartisan, independent agency of Congress and frequently issues reports relating to how the federal government operates and the impact of government programs. GAO activities are either prescribed by law or in response to Congressional requests.

Read the report, 401(K) Plans: Clearer Regulations Could Help Plan Sponsors Choose Investments for Participants.

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