Proposed Class Action Filed Concerning Qualified Default Investment Fund
By: JOHN H. MERKLE
July 23, 2009
A proposed class action filed in a Florida federal district court on June 25 underlines the importance of following appropriate procedures and having consistent documentation and employee communications when designating an investment fund as the qualified default investment alternative (QDIA) for 401(k) or other retirement plans.
A QDIA is the default investment alternative under a qualified retirement plan to which employees’ retirement accounts are allocated if an investment choice is not made by the employee. Only certain default investment alternatives qualify as QDIAs under Department of Labor regulations. The purpose of a QDIA is to insulate fiduciaries against fiduciary liability under ERISA for investing employee accounts for which no investment direction has been received in a default fund.
Anheuser-Busch was sued by an employee in connection with the company’s selection of a default investment fund to which the employee’s retirement funds were allocated and invested for two days in November 2008 before the employee moved them to another investment fund, resulting in an alleged $20,000 loss to the value of the employee’s account. The complaint makes three allegations: the designation of an indexed balanced fund was not a prudent choice as the plan’s QDIA; the fund was not a QDIA because the regulation’s employee notice and certain other QDIA prerequisites were not satisfied; and the plan document provided for a different and more conservative investment fund as the plan’s QDIA. The employee is seeking class action status to recover losses for himself and similarly affected employees against Anheuser-Busch and the bank trustee.
For more information on appropriate procedures, documentation, and communications concerning QDIAs for your 401(k) and other retirement plans contact the attorney in our Compensation Planning & Employee Benefits Group with whom you work.