The quotation above is one of the best-known Yogiisms, and it neatly describes the battle that is shaping up before the Department of Labor (DoL) finalizes its proposed regulation on default funds. On one side are the mutual fund companies and on the other are the insurance companies. And here’s what it’s all about. The Pension Protection Act of 2006 (PPA) provided fiduciary relief to employers by designating a “default fund” if the employee failed to make an investment election. It’s an especially important part of the now fully sanctioned automatic enrollment since a default fund would be where the funds of an automatically enrolled employees would be invested.
The PPA also directed the DoL to designate “default” investment elections that employers could select to meet their fiduciary responsibilities which could include a mix of asset classes other than a money market fund which has been the historical selection. And so the proposed regulation that the DoL prepared included balanced funds, target-maturity funds, or managed accounts. No money market fund and no stable value fund which the DoL considered too conservative.
With approximately $400 billion in stable value assets in 401(k) plans and an estimated 14 million more workers that will be brought into the system with automatic enrollment, it’s a real big issue for the insurance industry. And now the lobbyists for the insurance industry are gearing for a major campaign that would result in the DoL including stable value as a default option in the final regulation.
We’ll see who’s scores the winning run.