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5500 Preparer's Manual for 2012 Plan Years

5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.


EBSA issues proposed regs on default investment alternatives for plans

The Employee Benefits Security Administration (EBSA) has issued proposed regulations implementing provisions of the Pension Protection Act of 2006 (PPA, P.L. 109-280) that provide relief to plan fiduciaries who invest the assets of participants in "qualified default investment alternatives" in the absence of participant investment direction. The proposed rules are designed to make it easier for fiduciaries of 401(k) plans and other participant-directed defined contribution plans to adopt automatic enrollment design features. Public comments on the proposed rules should be received by the Labor Department on or before November 13, 2006.

Secretary of Labor Elaine L. Chao said that the proposed regulations will help employees accumulate larger nest eggs for retirement. "Workers who don't feel equipped to make investment decisions will be automatically invested in a mix of stocks and bonds appropriate for long-term savings," Chao noted.

Qualified default investment alternatives

Under the PPA, effective for plan years beginning after December 31, 2006, a participant in an individual account plan who does not submit investment instructions to the plan administrator will be treated as exercising actual control over the assets in his or her account if the plan fiduciaries' default investments are made in accordance with regulations prescribed by the Department of Labor. The Secretary of Labor is directed to issue the regulations within six months of August 17, 2006, the date of enactment of the PPA.

A participant is deemed, under the proposed rules, to have exercised control over assets in his or her account if, in the absence of investment direction from the participant, the plan fiduciary invests the assets in a qualified default investment alternative (QDIA). Under the proposed regulations, a QDIA:

A QDIA may be a life-cycle or targeted-retirement-date fund, a balanced fund, or a professionally managed account.

Notice to participants

The proposed rules require that a notice be furnished to participants and beneficiaries 30 days in advance of the first investment, and at least 30 days in advance of each subsequent plan year. The notice must include a description of the circumstances under which assets will be invested in a QDIA, a description of the investment objectives of the QDIA, and an explanation of the right of participants and beneficiaries to direct investment of the assets out of the QDIA.

Any material, such as investment prospectuses and other notices, provided to the plan by the QDIA must be furnished to participants and beneficiaries. In addition, participants and beneficiaries must have the opportunity to direct investments out of a QDIA with the same frequency available for other plan investments but no less frequently than quarterly, without financial penalty.

For more information on this and related topics, consult the CCH Pension Plan Guide.

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