ICI Supports Default Investment Regulations Proposed by Labor Department

Washington, DC, November 15, 2006 - The Institute supports regulations on default investments recently proposed by the Department of Labor (DOL), noting in a recent comment letter that the DOL's guidance will encourage employers to select default investments that will help workers meet their retirement needs over the long term.

Background
In August 2006, President Bush signed into law the Pension Protection Act of 2006, which removed several impediments to automatic enrollment in 401(k) plans. Among other things, the act amends the Employee Retirement Income Security Act (ERISA) to provide a safe harbor for plan fiduciaries investing participant assets in certain types of default investment alternatives in the absence of participant investment direction. The proposed regulations are intended to implement the amendments introduced in the Pension Protection Act.

ICI Position
ICI strongly supports the DOL's initiative and has worked closely with the Labor Department on several issues considered in the course of drafting the proposed regulation. ICI notes in its comment letter that, when adopted, the proposed regulation should increase plan participation and overall retirement savings rates.

ICI supports the regulation's designation of lifecycle funds, balanced funds, and managed account programs as qualified default investment alternatives. However, the proposal also imposes a number of conditions on use of these products or programs that are not necessary and undermine the usefulness of the rule. ICI also recommends elimination of the proposed requirement that a QDIA that is not a registered investment company be managed by an ERISA investment manager. The Institute also urges DOL to modify the proposed requirements for balanced funds so that plan sponsors do not have to monitor worker demographics. In addition, ICI asks for various changes and clarifications with respect to the notice and disclosure requirements, and emphasizes the need for transition guidance.

Related Links
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