Trade groups facing off over stable-value funds

Jun 4, 2007 @ 9:30 am

By Sara Hansard

WASHINGTON — The Investment Company Institute last week fought back against the life insurance industry’s attempt to get stable-value funds included as 401(k) default investment options.

In a letter to Susan Dudley, administrator of the Office of Management and Budget’s office of information and regulatory affairs, the Washington-based ICI said that including stable-value funds as an allowable default option in 401(k) plans “would be inconsistent with the purpose of measures enacted in the Pension Protection Act of 2006 to facilitate automatic enrollment and enhance the utility of 401(k) plans.”

Employers may adopt the conservative stable-value investments out of fear of litigation if the Department of Labor includes them as default options, according to the letter from ICI chief economist Brian Reid and pension regulation assistant counsel Elena Barone. If that happened, many 401(k) participants wouldn’t save enough for retirement, according to the mutual fund trade group.

The American Council of Life Insurers on March 30 urged the OMB to block the Labor Department from finalizing a proposal made last September that would make life cycle funds, balanced funds and managed accounts 401(k) default options that employers could use without fear of liability for participants who didn’t select their own investments. The Labor Department should stick with that plan, according to the ICI.

The Pension Protection Act, which was enacted last year, allows employers to enroll employees automatically in 401(k) plans unless workers specifically decline to participate. The law also directed the Labor Department to come up with default investments for people who don’t choose their own.

There is $396 billion in stable-value funds, and they are the largest conservative investment in defined contribution plans, according to the Stable Value Investment Association in Washington. The life insurance industry manages much of the money.

“We believe that guaranteed products are entirely appropriate as an investment option in 401(k) plans, said Jack Dolan, a spokesman for the ACLI in Washington. “We’re stressing this is an option.”

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