The U.S. District Court in the Western District of Kentucky recently ruled in favor of plan fiduciaries that adopted a qualified default investment alternative (QDIA) for an employer’s tax-qualified retirement plans. In Bidwell v. University Medical Center, Inc., No. 3:10-cv-00005-TBR (W.D. Ky. Apr. 17, 2011), the court ruled that a plan administrator did not breach its fiduciary duties when it did the following:
- Changed the plans’ default investment fund from a conservative stable value fund focused on capital preservation to a comparatively more aggressive “life cycle” fund invested in a mixture of equity and fixed income investments.
- Automatically transferred amounts held in the stable value fund to the life cycle fund for participants who did not make a different election.
Due to the timing of the transfer (July 2008) and prevailing market conditions, some plan participants incurred significant investment losses as a result of the increased equity investment exposure in the life cycle fund. Despite these investment losses, the court determined that the plan fiduciaries complied with the QDIA safe harbor established pursuant to the Pension Protection Act of 2006 (PPA) and, as such, were not liable for the investment losses.
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