What is the Objective of QDIA Validation?The QDIA Validation establishes a standard for evaluating QDIAs for compliance with regulatory requirements and supports the process of selection and monitoring of QDIAs required of ERISA plan fiduciaries.

The standards of the QDIA Validation permit plan fiduciaries and advisers to use consistent metrics to compare the variety of QDIA alternatives with very different styles and methods.

Dalbar uses these standards to evaluate QDIAs in any of their various forms and issues a detailed report of findings to QDIA providers, advisers and plan sponsors.

Why is QDIA Validation Necessary?Interwoven throughout the QDIA regulations is the emphasis on making prudent selections and ongoing monitoring in order to obtain protection from fiduciary liability. Fiduciaries are exposed to prohibited transaction penalties should they fail to meet the requirements. On the other hand, relief from fiduciary liability offered by QDIAs through federal law is the best protection available.

QDIAs are expected to soon become the dominant investment choice in employer sponsored retirement plans.

Program Outline

In the absence of detailed standards from regulators that defines what prudent selection and monitoring is required, ambiguity has existed about what constitutes compliance with the selection and monitoring requirement.

In response to this need to demonstrate procedural prudence Dalbar has developed the QDIA Validation standards.

What are the Benefits of QDIA Validation?

QDIA Validation provides plan sponsors and other fiduciaries with the process to demonstrate procedural prudence that can be examined by regulators and can be used as defense in the event of litigation.

QDIA Validation provides advisers with a meaningful tool to select and recommend QDIAs to clients. Advisers may review previously issued validation reports or may commission customized evaluations.

QDIA Validation provides firms that offer QDIAs with the ability to make necessary adjustments to pre-certify their QDIA offerings. Pre-certified QDIAs add value to the firm’s offerings by simplifying the procedural prudence required of plan sponsors and fiduciaries.

What is the Scope of QDIA Validation? The QDIA Validation may be applied to all QDIA alternatives referenced in the
Employee Retirement Income Security Act of 1974, as amended [ERISA] Section
404(c)(5) and associated regulations.

These include:

Three forms of investment:

• Funds
• Annuities
• Computer models

And five investment alternatives:

• Age based
• Risk based
• Managed account
• Short term investment
• Grandfathered investment

What is the Method and Timeframe of QDIA Validation? QDIA Validation can be performed on a plan specific basis or an investment specific basis.

Plan specific QDIA Validation engagements are between Dalbar and a plan sponsor or other fiduciary. This requires collecting information about the plan and employee demographic differences as well as details concerning the QDIA(s) under consideration. This information is evaluated against the QDIA Validation standards and a confidential report is issued to the plan sponsor or fiduciary.

This process requires four to eight weeks after an established start date. The start date is based on all required information being available in good order and mutual acceptance of the engagement.

Investment specific QDIA Validation engagements are between Dalbar and QDIA providers or advisers. Details of each investment contemplated for use as a QDIA must be provided as well as the availability of an individual to answer questions and probes. Each investment is then tested against the QDIA Validation standards and a preliminary confidential report is issued for review.

Providers have an opportunity to correct deficiencies and Dalbar will amend the Validation report as appropriate. After successful validation Dalbar issues an opinion and makes QDIA Validation report public on its Website and proactively to the press.

This process requires four to twelve weeks from a start date, depending on the omplexity and number of investments involved. The start date is based on all required information being available in good order and mutual acceptance of the engagement.

What is the Cost of QDIA Validation?  There is a minimum engagement fee of $5,000, which will typically cover one plan or three similar investments. Estimates are provided before the start of an engagement.

The minimum requirement may be waived for services added to an initial engagement and for annual updates of the validation.