Retirement plan sponsors may offer prudently selected mutual funds and investment education on the false assumption that plan participants know how to invest their funds; many don’t realize that they are still responsible and liable for participant investing, according to a new white paper from law firm Drinker Biddle.
One solution is to offer target-date funds, according to the paper. When paired with an ERISA safe harbor, TDFs can shield plan sponsors and fiduciaries from liabilities associated with participant investing.
When a participant does not indicate how he or she wants to invest assets in a retirement plan, fiduciaries have an obligation to invest those assets, the paper states, by selecting an appropriate default option.
In a re-enrollment, participants may redirect their assets into other investments; if they don’t they can be defaulted into a qualified default investment alternative.
“In light of the benefit to participants of using TDFs and the fiduciary protections offered by the QDIA rules, fiduciaries are well advised to add TDFs to the investment lineup and to take steps to cause as many participants as possible to be invested in those funds,” according to the paper.