The ERISA Advisory Council (EAC) has delivered a roadmap for enhancing qualified default investment alternatives (QDIAs) that could reshape how retirement plan sponsors approach retirement income planning, according to recent coverage from PSCA. The final QDIA report, recently published after being finalized in December 2024, presents three strategic recommendations to the Department of Labor (DOL) that address some of the most pressing challenges currently facing plan sponsors with regard to in-plan lifetime income options.
The timing of these recommendations reflects the evolving nature of workplace retirement benefits. As defined benefit plans continue their decline, defined contribution plans are increasingly viewed not just as accumulation vehicles but as comprehensive retirement income solutions. This shift places greater responsibility on plan sponsors to provide participants with tools and options that support them throughout their entire retirement journey.
The EAC’s first recommendation calls for the DOL to issue comprehensive guidance—potentially in the form of a detailed “Tips” document—to help fiduciaries navigate the selection and monitoring of retirement income products as QDIAs. This guidance would cover both guaranteed and non-guaranteed income options, incorporating insights from relevant law, regulations, and case law.
For plan sponsors who have been hesitant to embrace income products due to fiduciary concerns, this guidance could provide the clarity needed to move forward confidently. The recommendation acknowledges that while interest in retirement income solutions is growing, many sponsors need clearer direction on how to evaluate and implement these options prudently to avoid fiduciary liability.
The second recommendation focuses on improving participant education and disclosures across all phases of retirement plan participation—accumulation, transition, and decumulation. The EAC suggests updating existing educational materials like the target-date fund bulletin and DOL’s lifetime income calculator, while also developing new tools such as longevity risk calculators and “break even” analyses comparing guaranteed versus non-guaranteed income options. This recommendation recognizes that participants need better information to make informed decisions about their retirement investments, particularly as plans evolve to offer more sophisticated income solutions.
Perhaps most intriguingly, the EAC’s third recommendation addresses a long-standing inefficiency in the retirement system: involuntary rollovers to IRAs. Currently, these small-balance accounts often default to capital preservation investments, where they slowly erode due to fees and inflation. The recommendation proposes allowing QDIAs as IRA investment options for these automatic rollovers, which could dramatically improve outcomes for participants who might otherwise see their retirement savings diminish over time.
For plan sponsors, these recommendations signal potential changes that could expand their toolkit while also requiring more sophisticated decision-making processes. The emphasis on comprehensive guidance suggests regulators recognize the complexity sponsors face when evaluating income products. Meanwhile, the focus on enhanced disclosures indicates that participant communication will become increasingly important as plan offerings become more diverse.
The recommendations also highlight the growing expectation that retirement plans should serve participants beyond the accumulation phase. Plan sponsors may need to consider how their current QDIA selections align with participants’ long-term retirement income needs, not just their growth objectives during working years.
While these recommendations provide valuable insight into the DOL’s thinking and likely future direction for retirement plan policy, they are not binding. Plan sponsors and their advisors would be wise to consider how these potential changes might impact their plan design and participant outcomes and pay careful attention to ongoing developments.
