News Releases


<nobr>Nov 14, 2006</nobr>

Default Investment Regulations Sweep Far Beyond Auto-Enrollment


Washington, D.C.—The Department of Labor’s (DOL) new regulations governing default investments in participant directed retirement accounts go far beyond automatic enrollment, according to The ERISA Industry Committee (ERIC), a Washington trade group representing the benefit and compensation issues of the nation’s largest employers. The regulations would affect employer handling of retirement assets in many different situations according to ERIC’s comments filed November 13 with DOL.

“The sweep of the regulations is quite broad,” said the group’s president, Mark Ugoretz. “While the most pronounced effect will be on plans with automatic enrollment features, the regulations would also affect other circumstances where participants fail to provide investment direction, including incomplete enrollment forms, rollovers, removals of investment options, beneficiary and alternative payee balances, disputes, and missing persons.”

ERIC applauded the DOL for taking quick action on the regulations, which DOL officials were able to issue only six weeks after passage of the Pension Protection Act provisions the regulations implement. The Act allows employers to select default investments for employees that include a mix of asset classes. Previously, employers were driven to invest those funds in extremely conservative investments that minimized risk for the employee, but often were a poor fit for the employee’s situation, especially since many employees simply allowed their investments to sit with a minimal rate of return.

The new regulations are intended to allow employers to better match the default investment with an employee’s needs without incurring fiduciary liability. However, ERIC cautioned that the regulations need additional clarification on several points before they are finalized. For example, employers may elect to place employees’ assets into different investments based on certain characteristics.

“An employer may have a more aggressive fund that invests heavily in the stock market for younger employees and a more conservative fund that invests in heavily in bonds for older employees,” said Ugoretz. “The regulations must make clear that employers are not limited to one qualified default investment option.”

ERIC’s comments also highlighted that the regulations should be clear that employers may consider factors other than employees’ ages when considering default investment options. For example, a firm with high employee turnover might want to choose a stable value fund or money market fund to ensure that employees with short tenures are not caught losing money in a stock market downturn. The group urges DOL to make clear that such arrangements are permissible.

For those wishing to implement automatic enrollment features in their plans, ERIC’s comments urge DOL to confirm that ERISA preempts any state law that would inhibit such arrangements from being implemented.

“Improved default investments will help ensure that employees in a variety of situations are able to build assets that they can use to retire,” said Ugoretz. “It is critical that employers be provided the opportunity to assist employees by starting them on the path to retirement savings early and placing any undirected savings into funds that will help employees accumulate assets.”

S. Michael Chittenden
Director, Communications
(202) 789-1400
Text Files:

ERIC Comments on Proposed Default Investment Regulations

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