Jumpstart.org believes that financial literacy begins when people are students in high school. For children to become wise on money, and not fall into bankruptcy, teach them to balance a checkbook and manage earning, spending, saving, and investing. Parents become an example by letting children take part when reviewing their retirement savings goals.
In October 2007 the Department of Labor (DOL) released final regulations governing the use of Qualified Default Investment Alternatives (QDIAs). The Pension Protection Act of 2006 (PPA) added ERISA §404(c)(5) to broaden the relief for plan fiduciaries under ERISA §404(c). The rule extends the fiduciary relief under ERISA §404(c) to situations in which a plan participant fails to choose how to invest funds, and the plan directs that the account be invested in a QDIA.
If a participant receives notice describing the default investment that will apply if he/she does not give investment instructions, and the default investment constitutes a QDIA, the participant will be treated as having exercised control over the assets that are invested in the QDIA.
A fiduciary of an individual account plan will not be liable under ERISA for any loss resulting from the investment in a QDIA, if the following requirements are met:
1) Participants receive advance notice at least 30 days before the first default investment, or at least 30 days before the date of plan eligibility. Participants must receive an annual notice at least 30 days in advance of each subsequent plan year.
2) Participants given the opportunity to direct their investments and failed to do so.
3) The assets must be invested in a QDIA. There are four alternative types of investment products that meet the definition of a QDIA. The alternatives: (a) product with a mix of investments that takes into account the individual participant's age, retirement age, or life expectancy, such as a life-cycle or targeted retirement date fund; (b) product with a mix of investments that takes into account the characteristics of a group of employees as a whole, such as a balanced fund; (c) investment service that allocates contributions among existing plan options to provide an asset mix that takes into account an individual participant's age or retirement date, such as a professionally managed account; (d) capital preservation product, but only for the first 120 days of participation. Absent participant direction, the plan fiduciary must redirect the participant's account balance into one of the above three QDIA categories after the first 120 days of participation.
4) Plan fiduciaries must provide participants investment information such as fund prospectuses, proxy voting materials, and fund performance and expense information for the QDIA into which a participant's assets will be defaulted.
5) Participants must have the ability to direct the investment not less frequently than once in any three-month period.
6) A broad range of investment alternatives must be offered.
The Bankruptcy Code provides protection and as such acts as a bailout for consumers who are overburdened by debt and are not given a break from their creditors. Consult with a bankruptcy attorney on financial literacy issues.
