3772 / When are default investments permitted under a 401(k) plan?

For plan years beginning after 2006, participants in individual account plans that meet specific notice requirements will be deemed to have exercised control over the assets in their accounts with respect to the amount of contributions and earnings that, in the absence of an investment election by the participants, are invested by the plan in accordance with regulations.¹ Final regulations offer fiduciaries relief from liability for losses resulting from automatically investing participant accounts in a qualified default investment alternative (QDIA). In addition, the fiduciary would not be liable for the decisions made by the entity managing the QDIA. Fiduciaries, however, remain liable for prudently selecting and monitoring any QDIA under the plan.²

For the regulatory relief to apply:

(1) the assets must be invested in a QDIA, as defined below;

(2) the participant or beneficiary on whose behalf the account is maintained must have had the opportunity to direct the investment of the assets in his or her account but did not do so;