Investments as 401(k) defaults floated

The Department of Labor has proposed that investments be allowed as default options in 401(k) plans, the Office of Management and Budget, confirmed today. The Labor Department would not divulge the details of proposal, but sources who are following the matter said the DOL proposal does not include stable-value funds as default investments for which employers would be given liability protection. Instead, according to knowledgeable sources, the DOL has proposed allowing employers to use conservative investments like stable value funds in “transitional” situations, such as where employees are short-term, or where they are not full-time. “This rule came in for OMB review on July 11,” said OMB spokeswoman Andrea Wuebker in an e-mail. If adopted as a final rule, the proposal would likely result in less 401(k) money going into stable-value funds. Many employers have used the funds as a default option, believing doing so would protect them from liability. Last September, as part of its implementation of the Pension Protection Act of 2006, the DOL proposed giving liability protection to employers who use three primary default investment options for employees who do not choose their own investments: balanced funds, life cycle funds, or managed accounts. The American Council of Life Insurers has been lobbying heavily to try to get stable value funds included as a default option. The Investment Company Institute has fought against including stable value funds under “safe harbor” rules for default investments, arguing that the conservative investments do not have a high enough return to provide adequate retirement income. Stable-value funds, which control about $400 billion in assets, make up 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.