DOL Regs on Default Investments Unclear, GAO Finds

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Sept. 4 — Many sponsors of 401(k) plans face regulatory uncertainty when selecting a default investment option to automatically enroll participants into, according to a Government Accountability Office report.

“Plan sponsors cited regulatory uncertainty, liability protection, and the adoption of innovative products as significant challenges when adopting one of the three default investments,” the GAO said in the report, released Sept. 4.

The Department of Labor issued final rules in 2007 providing plan sponsors with a safe harbor for investing contributions into qualified default investment arrangements when employees made no elections, but the GAO found that many plan sponsors think the regulations are unclear in several areas, the report said.

Specifically, the sponsors said the rules were unclear about how to fulfill the requirement to factor participant ages into their default investment; how to determine whether each default investment provided the same level of protection; and whether they could incorporate other features into investments, such as annuities, the GAO said.

“Such uncertainty could lead some plan sponsors to make suboptimal choices when selecting a plan’s default investment that could have long-lasting negative effects on participants’ retirement savings,” the report said.

The GAO recommended that the DOL consider the obstacles that plan sponsors cited in the report, including how the challenges can be addressed and whether any “corrective actions” can be implemented. The DOL generally agreed with the recommendation, according to the report.

The report can be found at