
The following is not meant to be legal advice, and is provided for information purposes.
The Department of Labor issued proposed regulations to 401(k) plan fiduciaries on how to invest accounts of employees who do not make investment elections. The proposed regulations implement a default investment safe harbor enacted as part of the Pension Protection Act of 2006.
According to the safe harbor, plan fiduciaries will not be liable to a participant who does not make an investment election, as long as the account is invested in a “qualified default investment alternative”.
Plan fiduciaries remain responsible for the prudent selection of the qualified default investment alternative.
1. Life-cycle funds which provide a mix of debt and equity investments depending on the age of the participant, becoming conservative for older participants.
2. Single balanced funds which provide a prudent overall mix of debt and equity. These funds can be used for all participants, regardless of age.
3. Individually managed account, with might not be a practical alternative for larger plans.
Fixed income, stable value and money market funds are not qualified alternatives.
The regulations are intended to complement the rules providing for automatic enrollment in 401(k) plans, but a plan is not required to provide for automatic enrollment in order to utilize the default investment safe harbor. The safe harbor can be used for employees never make an investment election for any reason.
The plan must provide a notice to all participants 30 days before the first default investment is made. Then the notice must be sent again 30 days before the beginning of each plan year.
The plan must distribute to participants copies of all materials received from the default investment fund, including annual reports, proxy materials.







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