Qualified Default Investment Alternative (QDIA)

C is correct. Capital preservation products like stable value funds can serve as QDIAs, but only for the first 120 days of a participant's enrollment. After 120 days, the QDIA must transition to one of the three long-term options: a target-date fund, balanced fund, or professionally managed account. This limitation exists because capital preservation products are designed for principal protection, not the long-term growth needed for retirement savings.

A is incorrect because stable value funds CAN be used as QDIAs, just not permanently—only for the initial 120-day period. The DOL regulations explicitly permit capital preservation products for this limited timeframe. B is incorrect because there is a strict 120-day limit; stable value funds cannot serve as permanent QDIAs regardless of notice compliance. D is incorrect because the 120-day limit applies to all participants regardless of age; there is no special provision for those nearing retirement.

B is correct. QDIA regulations require plan administrators to provide participants with notice at least 30 days BEFORE the first investment in the QDIA (advance notice, not after-the-fact notification) and at least 30 days before each subsequent plan year (annual advance notice). These notices must explain the QDIA, describe participant rights to direct investments, explain how to obtain additional information, and describe transfer rights.

A is incorrect because notice must be provided BEFORE (at least 30 days in advance), not after the investment. Providing notice after contributions are already invested would defeat the purpose of informed consent. C is incorrect because QDIA notices are mandatory, not optional or request-based. The plan must proactively provide these notices to all affected participants. D is incorrect because the timing is wrong (30 days before plan year, not 90 days after year-end) and it omits the critical initial notice requirement before first investment.

A is correct. This accurately captures the key distinction: Section 404(c) safe harbor applies when participants exercise control and actively direct their own investments (participant makes choices, fiduciary is protected from liability for those participant-directed choices). Section 404(c)(5) QDIA safe harbor applies when participants FAIL to direct investments and their contributions default to a QDIA (participant makes no choice, fiduciary is protected as long as QDIA meets regulatory requirements and is properly monitored).

B is incorrect because both provisions can apply to various types of defined contribution plans, not limited by plan type as described. Section 404(c) is not restricted to 401(k)s only. C is incorrect because it misstates notice requirements. QDIA safe harbor requires 30-day advance notices (initially and annually), not the quarterly frequency described. D is incorrect because neither provision eliminates ALL fiduciary liability. Plan sponsors retain the duty to prudently select and monitor investment options (including QDIAs) and to ensure plan compliance with all ERISA requirements.

B is correct (the EXCEPT answer). This statement is FALSE and represents a critical misunderstanding of QDIA safe harbor protection. Even after selecting an appropriate QDIA, plan fiduciaries retain the ongoing duty to prudently MONITOR the QDIA. The safe harbor protects against liability for participant investment losses due to inaction, but does NOT eliminate the fiduciary's responsibility to ensure the QDIA remains appropriate, monitor performance, review fees, and make changes if necessary. Failure to monitor can result in fiduciary breach.

A is accurate: Target-date funds (also called lifecycle funds) are one of the four investment types that qualify as QDIAs. They automatically adjust the asset allocation to become more conservative as the target retirement date approaches. B is the false statement (the answer to this EXCEPT question). C is accurate: QDIA regulations require participants to have the ability to transfer out of the default investment at least quarterly, and the plan cannot impose surrender charges, redemption fees, or other penalties for transferring away from the QDIA. D is accurate: QDIAs are generally prohibited from investing participant contributions in employer stock (company stock), though there are limited exceptions.

B is correct. Statements 1, 2, and 3 are requirements for QDIA safe harbor protection.

Statement 1 is TRUE: QDIAs must be professionally managed by an investment manager (as defined under ERISA), a plan trustee or committee, a plan sponsor, or must be a registered investment company under the Investment Company Act of 1940. This ensures qualified oversight of default investments.

Statement 2 is TRUE: Participants must receive notice at least 30 days before their first investment in the QDIA. This advance notice must explain the QDIA, describe the participant's right to direct investments elsewhere, and explain transfer procedures. Annual notices are also required at least 30 days before each plan year.

Statement 3 is TRUE: The QDIA must be diversified to minimize the risk of large losses, consistent with ERISA's general prudence and diversification requirements. This is why a single stock or narrowly focused investment cannot serve as a QDIA.

Statement 4 is FALSE: Participants must be able to transfer OUT of the QDIA at least QUARTERLY (every 3 months), not annually. The transfer frequency must be at least as frequent as transfers from other plan investments, with a minimum of quarterly access. Additionally, no fees or penalties can be charged for transfers away from the QDIA.