ERISA-DOL Discusses The Selection Of A Default Investment For A Participant-Directed Account Plan
In an Information Letter, the DOL responded to a request regarding the application of ERISA to TIAA’s “Income for Life Custom Portfolios” (the “ILCPs”). TIAA had represented that the ILCP product meets all the conditions of a “qualified default investment alternative” (a “QDIA”) under ERISA section 404(c)(5) and 29 CFR 2550.404c-5, except that the ILCP contains certain liquidity and transferability restrictions attributable to an annuity component that fail the frequency of transfer requirement described in paragraph (c)(5)(i) of the regulation. TIAA asked the DOL whether: (1) the ILCPs nonetheless should still be appropriate for a plan fiduciary to select as a default investment alternative, because the annuity component allows the ILCP to provide in-plan access to an investment with a guaranteed rate of return and guaranteed lifetime income at retirement and (2) whether Title I of ERISA prohibits a plan fiduciary from selecting the ILCP as a default investment alternative for a participant-directed individual account plan.
The DOL responded to these questions, by stating that since the ILCPs failed to meet the frequency of transfer requirement in the regulations, the ILCPs could not qualify as QDIAs. Nevertheless, the QDIA regulation, at 29 CFR 2550.404c-5(a)(2) and 2550.404c-5(f)(4), states that the QDIA standards are not intended to be the exclusive means by which a fiduciary might satisfy his or her responsibilities with respect to selection of a default investment for assets in the individual account of a participant or beneficiary. In the DOL’s view, a fiduciary may be able to conclude, without regard to the fiduciary relief available under ERISA section 404(c)(5) and the regulation, that an investment product or portfolio is a prudent default investment for a plan.