CUNA Regulatory Comment Call

October 25, 2006

Default Investments for Automatic Enrollment in 401(k) Plans




Conditions for Fiduciary Relief


Opportunity to Make Investment Instruction

Notice Requirement

QDIA Materials Furnished to Participants and Beneficiaries

Frequency of Transfers Out of the QDIA

Investment Alternatives


Remaining Fiduciary Liabilities


  1. 1. DOL generally expects the additional costs that plan sponsors may incur to meet the conditions of the proposal would be low. Specifically, the annual notice provision can be satisfied by adding information to existing notices and disclosures, such as the Summary Plan Description, the annual investment election form, or by adapting information provided to the plan by the investment manager of a qualified default investment alternative. The requirement to pass through investment material to participants and beneficiaries does not impose extensive costs. Would you expect there to be a significant increased burden to comply with this proposal?

    Yes _____ No _____

    Do you have suggestions as to how to minimize the administrative cost?

  2. DOL indicates that the proposed regulation may indirectly prompt some plan sponsors to shoulder additional costs in terms of increased retirement benefits paid to employees. For example, it is expected that the proposed regulation, by promoting the adoption of automatic enrollment programs, will have the indirect affect of increasing aggregate employer matching contributions by between $700 million and $1.3 billion annually (expressed at 2005 levels). Adverse consequences are not expected because the adoption of automatic enrollment programs and the provision of matching contributions generally are at the discretion of the plan sponsor. Do you agree with this analysis?

    Yes _____ No _____

    Please explain.

  3. Will plan sponsors that direct default investments from very low-risk instruments into higher-performing portfolios make other changes to investment options or undertake new efforts to inform or influence participants’ investment decisions? Will those plan sponsors that implement automatic enrollment programs change other provisions of their plans as well? For example, might they change matching contribution formulas, eligibility or vesting provisions, loan programs, or distribution policies?

    Please explain.

  4. More than one-half of all participant directed individual account plans recently reported compliance with ERISA section 404(c)(1) and associated regulations. While the fiduciary protections afforded by this proposed regulation for default investments are intended to be similar to those afforded by the regulation under section 404(c)(1) of ERISA for participants’ active investment elections, it is possible that some fiduciaries who are covered by the proposed regulation in connection with default investments will not be covered by the regulation under section 404(c)(1) in connection with participant directed investments out of default investments. If so, how might the proposed regulation’s incentives interact with those associated with the existing ERISA section 404(c) regulation, and to what effect?

    Please explain.

  5. Will employees who make additional contributions as a result of new automatic enrollment programs reduce their current consumption or other types of current saving, or some of each? Will they be more or less likely than otherwise similar participants to retain or roll over their accounts, preserving them into retirement?

    Please explain.

  6. Section 902 of the Act adds a new ERISA section providing that ERISA will supersede any state law that would directly or indirectly prohibit or restrict the inclusion in any plan of an automatic contribution arrangement. DOL has requested comments on whether and to what extent regulations would be helpful in addressing the preemption provisions.

    Please explain.

  7. According to the analysis in the proposal (please see Cost-Benefit Assessment on page 56820), average increases in pension income will be larger for individuals with higher career earnings, but they will be proportionately larger for those with lower career earnings. Moreover, while average pension incomes will rise in each of the four career earnings quarterlies, a small minority of individuals in each quartile could lose some pension income. The proposed regulation may also have macroeconomic consequences, which are likely to be small but positive. An increase in retirement saving is likely to promote investment and long-term economic productivity and growth. The increase in retirement saving will be very small relative to overall market capitalization, and may be offset in part by reductions in other saving. Based on DOL’s analysis and estimates, the agency is confident that the proposed regulation will increase aggregate retirement savings and pension income substantially. The Department therefore concludes that the benefits of this proposed regulation will exceed its costs by a wide margin. Do you agree with this conclusion?

    Yes _____ No _____

    Why or why not?

  8. Other comments?

Eric Richard • EVP &General Counsel • (202) 508-6742 •
Mary Mitchell Dunn • SVP & Deputy General Counsel • (202) 508-6736 •
Jeffrey Bloch • Senior Assistant General Counsel • (202) 508-6732 •
Lilly Thomas • Assistant General Counsel • (202) 508-6733 •
Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 •