Earlier this month in my article, It ain’t over till it’s over, I discussed the insurance industry’s objection to stable value funds not being part of the Department of Labor (DOL) regulation for default funds. The Pension Protection Act of 2006 directed the DOL to designate “default” investment elections that employers could select to meet their fiduciary responsibilities when an employee does not make an an investment election.
The historical selection by most employers has been a fixed income fund – money market fund or stable value. The proposed DOL regulation, however, includes only options having equity exposure, i.e., asset allocation funds, target-maturity funds, or managed accounts. And with over $300 billion at the end of 2005 in stable value funds according to the Investment Company Institute, most of which is managed by insurance companies, the insurance industry went to work in Washington to get stable value funds added as a fourth option. But it looks like it’s over. Investment News reports that the DOL’s final regulation to be issued next month will continue to reject stable value funds as too conservative and will not include this asset class as a default option.
If, indeed, this is the case, it will be interesting to see how it will play out after the regulation is finalized. Will some employers continue to include stable value funds as their default fund? And what will the reaction be if there is a market turndown and participants in default funds lose money? So, it’s really not over – particularly if the insurance industry convinces Congress to get involved.