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May 04, 2008 at 04:00 PM
The Department of Labor last week provided “significant” relief to insurers and others who offered default investment alternatives to beneficiaries of retirement plans prior to last December through a clarification of its new rules involving these investments, according to a lawyer who advises financial institutions on laws and rules dealing with retirement plans.
And, in a statement, the American Council of Life Insurers says that while it is still evaluating the new guidance, “Plan fiduciaries should find the Department’s latest guidance helpful in determining whether a particular investment qualifies for ‘grandfather’ treatment under the qualified default investment alternatives rules.”
The new guidance significantly broadened the definition of “grandfathered” stable value investment products that qualify for a safe harbor under the rules, explains Scott Webster, a partner at Goodwin Procter in Boston.
But it also provided further relief by clarifying what plan sponsors have to say in notifying plan beneficiaries that their money remains in default investments pending further instructions, he says.
In fact, Webster says, the guidance is very helpful because it explains that the relief will be available on an ongoing basis.
“Even if you didn’t give notice as a plan sponsor or administrator in December when this rule went into effect, you will still have access to the safe harbor for default investments provided by the regulation 30 days after you notify the beneficiary” that the funds remain in the default investment, he says.
“Practically, this is important because a lot of plan sponsors have been sitting and waiting because didn’t know if the plan was grandfathered, and consequently, they didn’t send out the notice,” Webster says.
An estimated $94 billion was invested in these funds before the new rule went into effect, according to calculations by EBRI.
The guidance is also helpful, Webster says, because it clarifies that the term “plan fiduciary” can also mean a committee of individuals made up mostly of employees of the plan sponsor.
