Life insurers are asking the Bush administration to step in and delay implementation if a final U.S. Department of Labor rule rejects the use of annuities and guaranteed investment contracts as default investments in 401(k) plans.
The contingency plan came to light in a letter the American Council of Life Insurers, Washington, sent on behalf of its 373 members to the Office of Management and Budget.
“The American Council of Life Insurers and its members have significant concerns regarding the U.S. Department of Labor, Employee Benefits Security Administration’s proposed regulation addressing default investment alternatives under participant-directed” 401(k) plans, Anne Cammack, an ACLI senior vice president, writes in the letter.
If the final rule “materially follows” the proposed regulation with respect to qualified default investment alternatives, OMB should “return the default investment regulation to EBSA for further consideration of the matters discussed below,” Cammack writes.
In addition, Cammack asks OMB officials to meet with the ACLI to “discuss our concerns with you and members of your staff at your earliest convenience.”
The current Labor Department proposed rule, which implements a provision of the Pension Protection Act of 2006, includes mutual fund products such as lifecycle funds on the approved list of default investments.
Retirement plan administrators would use the default options to invest the funds of plan participants who do not take active steps to allocate their own assets.
The insurance industry, with the help of a letter from 14 members of Congress last December, already has persuaded the agency to delay issuing a final rule. The PPA called for the final rule to be issued in February.
The Labor Department “got it right the first time,” says F. Gregory Ahern, a spokesman for the Investment Company Institute, Washington, a group that represents the fund companies.
“It would be wrong to weaken that regulation by adding other products – including money-market funds and other stable-value products – that don’t meet the law’s objectives,” Ahern says.
The representative for the Labor Department said Monday it is unclear when a final rule will be published, and there is some belief a final rule may not be published for another month or more.
OMB is the gate keeper for the administration and must approve all regulations imposed by federal departments and agencies. Among the criteria OMB uses in approving a new regulation is whether the regulation’s costs are greater than its benefits.
The ACLI says OMB should reject Labor Department default provisions excluding annuities if they are in a final rule because the regulatory analysis underlying the default investment regulation is “incomplete,” and the cost-benefit analysis on which the agency based its regulatory approach is “flawed.”
“We believe that the EBSA has substantially overstated the benefits of its regulation and failed to consider several significant costs in the form of disruption to financial markets, the retirements subject to the regulation, and the American workers that participate in those plans,” Cammack writes.