A mutual fund trade group is sparring with insurers over whether annuities and guaranteed investment contracts are suitable for use as default investments in 401(k) plans.
The federal Office of Management Budget is trying to resolve the dispute, which involves the wording of a proposed rule that would implement a default investments provision of the Pension Protection Act of 2001 dealing with qualified default investment alternatives.
The QDIA provision would guide employers that want to select suitable investment options for employees who fail to provide investment direction.
The Investment Company Institute, Washington, which invests the fund companies, says insurers’ “stable value” products would not make good default 401(k) plan investment options.
“We think that encouraging employers to use stable value products as their default would be disastrous for plan participants,” says Edward Giltenan, an ICI spokesman. “We are submitting a letter to OMB urging the adoption of the default options originally recommended by the Department of Labor, as Congress clearly intended in the PPA: lifecycle or target date funds; balanced portfolios; or an individually managed account.”
If stable value products were an option, many employers would view the products as a “safe” option that would be less likely to lead to future litigation, the ICI says.