Safe Harbors
Plan sponsors
who believe they are
not liable because
they are covered
under a safe harbor,
may in fact have
liability due from
their inability to
meet all of the
conditions set forth
under 404(c).”
for each employee. The safe harbor 401(k)
eases administrative burdens on employers
by eliminating some of the complex tax rules
ordinarily applied to traditional 401(k) plans.
QDIAs and safe harbor plans were created
in the Pension Protection Act of 2006 to
encourage employers to offer automatic
enrollment options by limiting the liability
of the plan sponsors by affording them legal
protections under the safe harbor regulations.
If the conditions outlined by the PPA are
met, then it is possible for plan sponsors to
find relief from fiduciary liability. However,
plan sponsors are not relieved of liability
for the prudent selection and monitoring
of a QDIA. (DOL)
Even with the implementation of the Pension
Protection Act of 2006, experts warn that
liability can arise for plan sponsors due to their
failure to fully comprehend the conditions
set forth in the PPA. (InvestSense,LLC)
As Fred Reish has been often quoted, “the
vast majority of plans believe that they are
404(c) compliant, …, very few of them
satisfy all of the 404(c) requirements.”
(Reish, InvestSense, LLC) Therefore, plan
sponsors who believe they are not liable
because they are covered under a safe
harbor, may in fact have liability due from
their inability to meet all of the conditions
set forth under 404(c).
The goal of creating QDIAs by the PPA
of 2006 was to provide relief from liability
for investment outcomes to fiduciaries,
thereby encouraging plan sponsors to
offer the option of automatic enrollment to
employees who did not otherwise choose to
participate in the pension plans. Experts are
studying the long-term effects of QDIAs.
However, researches caution, “most pensionrelated research has focused on individuals’
behavior – whether workers participate in
a 401(k), how much they contribute, and
how they make investment choices. Even
the discussion surrounding automatic
enrollment has focused on how it benefits
employees by increasing their pension
coverage and ultimately their retirement
savings. Comparatively little is known about
employer decisions regar