Lobbyists representing defined contribution plans want more default investment options given safe-harbor protection under the Labor Department's proposed automatic enrollment regulations, according to comments received by the agency.
The regulations, mandated by the Pension Protection Act of 2006, are expected to spur greater use of automatic enrollments because they offer employers protection from fiduciary lawsuits if a plan's default options lose money. But the Labor Department's proposal, announced Sept. 26, would only provide safe harbor from plans' fiduciary liability under the Employee Retirement Income and Security Act of 1974 for three default options: balanced funds, lifecycle funds based on the targeted retirement date of the participant, or managed accounts.
Many who provided comments criticized the Labor Department's omission of stable value and money market funds, which have been widely used as default options.
The Washington-based ERISA Industry Committee, which represents large employers, said that stable value and money market funds could be appropriate defaults for companies with primarily older employees, high employee turnover rates or an additional defined contribution plan that's skewed toward equities.
"Depending on the characteristics of the employees who are eligible to participate in the plan, a money market or stable value fund might be well suited to serve as the plan's" qualified default investment alternative, according to the committee's comments.
Echoing those sentiments was the American Federation of Labor and Congress of Industrial Organizations, Washington, representing union members. "We think the DOL should be careful about requiring fiduciaries to place assets at risk, a situation that may make many of them uncomfortable, and those that choose to be more cautious should not be penalized," the AFL-CIO said in its comment letter, signed by Thea Lee, policy director of the organization's legislation department.
Also meeting opposition was a proposed requirement that the qualified default optionsbe handled by an investment manager that meets specific ERISA fiduciary requirements or an investment company registered with the Securities and Exchange Commission.
In a joint letter, the Profit Sharing/401(k) Council of America, Chicago, and the Washington-based U.S. Chamber of Commerce and National Association of Manufacturers argued that requirement would add to plan costs by forcing plans to hire an intermediary.
"This requirement eliminated the ability of a plan sponsor to directly manage a QDIA," the joint letter read.