The American Benefits Council and the mutual fund industry have submitted a joint letter to the Department of Labor suggesting a list of potential items that fiduciaries of defined contribution plans should consider when selecting and monitoring the selection and monitoring of target date funds.
The letter is important to the insurance industry because a key business of insurance companies is administering defined contribution plans, while agents provide advice to beneficiaries of these plans.
Use of target date funds is growing as a result of rules issued by the agency in the wake of the Pension Protection Act of 2006.
That law mandated that the agency promulgate rules that phase out the use of guaranteed investment contracts that were commonly used as default investments.
GICs are mostly provided by insurance companies.
Regulations promulgated by the agency in 2008 mandated that GICs, as sold by insurance companies, could only be used as default investments for a short period of time.
GICs are relatively low-yielding, conservative products chosen by risk-adverse beneficiaries of defined benefit plans.