WASHINGTON — The Labor Department's proposed investment default regulation for participant-directed defined contribution plans could boost sponsors' use of automatic enrollment by 50% and pump billions into the plans.
The proposed regulation, issued Sept. 26, is the first to deal with default options. It provides sponsors a safe harbor from fiduciary liability if their default options are balanced funds, lifecycle funds based on the targeted retirement date of the participant, or managed accounts. Until now, no such safe harbor existed, so fiduciaries could be sued no matter what default option they chose.
David L. Wray, president of the Profit Sharing/401(k) Council of America, Chicago, said even under the proposed rules, "it is still a fiduciary decision by employers to choose the best option for the default," which might not necessarily be one of the types the new rules list.
"The DOL gave direction on what people should be comfortable in doing, but didn't say people couldn't do something else as a fiduciary if they feel justified in doing it. The DOL didn't say ‘use only these three choices.'"
The Labor Department's list of default options excludes two that had been widely used in the past — stable value and money market funds.