Devoted to Corporate Attorneys, Corporate Lawyers, and Corporate Counsel

On February 14, 2007, Ropes & Gray spoke in San Francisco, CA on default investment choices in 401(k) plans.

The employer is alright to have default investment funds if a participant in a 401(k) plan has notice of the default, and gives the participant an opportunity to move out of the default fund.  When an employer forces a participant to change funds such as when the investment committee of the 401(k) plan changes funds after a review, the funds usually are required to be mapped to similar funds, and the participant should be given notice of the change.  The investment committee obtains fiduciary protection if it gives an advanced 30 days notice, and there is actual mapping.  

There may be times when changes occur in funds because the fiduciary has the responsibility to provide good investment choirces to decrease the risk of losing money.  Currently, there does not seem to be any standardization in investment choices in 401(k) plans.  The impetus for standardization may come from suits by plaintiffs.  Shares made available to people in 401(k) plans may differ from retail.  Usually in 401(k) plans, the shares are R-shares and these shares may not perform as well as shares purchased in retail.