Qualified Default Investment Alternative

Ferdinand Achterberg, age 30, is invested in the Marchetti 2060 Target Retirement Fund, while a 62-year-old colleague holds the Marchetti 2030 fund from the same family. The two funds share a manager and an investment process but hold very different mixes of stocks and bonds. The schedule that produces that difference is the fund family's:

1. A.Glide pathCorrect. The glide path is the scheduled shift from equities toward fixed income as the target date nears.
2. B.Expense ratio waiver scheduleFee waivers affect cost, not the stock and bond mix.
3. C.Benchmark indexEach fund is measured against a blended benchmark, but the benchmark follows from the allocation rather than creating it.
4. D.Assumed interest rateThe assumed interest rate is the benchmark used to set variable annuity payout units, not a mutual fund allocation schedule.

Why: A target date fund follows a glide path: a predetermined schedule that gradually shifts the allocation away from equities and toward fixed income and cash as the target year approaches. The 2060 fund sits at the equity-heavy end of the path; the 2030 fund is far along it. Representatives should know whether a family's glide path is a "to retirement" design, which reaches its most conservative mix at the target date, or a "through retirement" design, which keeps de-risking for years afterward, because the equity exposure at the target date can differ substantially between families with the same target year.

Silverbrook Manufacturing automatically enrolls new employees in its 401(k) plan and invests the contributions of any participant who makes no investment election into an age-appropriate target date fund. By using a qualified default investment alternative, the plan fiduciaries obtain:

1. A.A guarantee that the participant's principal will not declineNo QDIA guarantees principal; the relief covers fiduciary liability, not investment outcomes.
2. B.Permission to leave undirected contributions permanently in a money market fundCapital preservation vehicles qualify only for a limited initial period, not as the permanent default.
3. C.Relief from liability for the investment results of the default, provided participants get advance notice, may redirect their balances, and the default fits an approved category such as a target date fundCorrect. The QDIA framework transfers investment-result liability to the participant when the notice and redirection conditions are met.
4. D.A complete exemption from ERISA's fiduciary standards for the planThe fiduciary must still prudently select and monitor the QDIA. Only investment-result liability is shifted.

Why: When a participant fails to give investment direction, ERISA lets the fiduciary invest the money in a qualified default investment alternative and treat the participant as having exercised control. That relief requires advance notice to participants, the ability to redirect the money without penalty, delivery of the fund's materials, and a default that fits an approved category such as a target date fund, a balanced fund or a professionally managed account. The relief is from liability for the investment results, not a promise that the default will perform well.