Two leading consumer groups are lending their support to a Department of Labor proposal that would exclude stable-value funds, money market funds, guaranteed investment contracts and other types of capital preservation funds as defaults in 401(k) plans with automatic enrollment.
In doing so, the Consumer Federation of America and Fund Democracy are siding with the mutual fund industry and the Investment Company Institute in their opposition to the insurance industry’s push to permit stable-value and similar capital-preservation funds to be among the 401(k) automatic enrollment defaults.
In a letter to the Office of Management and Budget on Monday, in which they ask the OMB to support the DOL, the two groups call permitting stable-value funds a “mattress mentality” and the insurance industry’s support of them “self-interested arguments.”
Citing data from the ICI, the groups noted that a person who begins investing in a target-date fund at age 30 would have an account twice as big by the time they retire than if they had invested in a stable-value fund.
“It is widely-accepted that, if capital preservation vehicles are included as
qualified default investments, they will be adopted by far too many employers and will attract a disproportionate percentage of retirement assets,” the groups write in their letter. “Why should an employer take
greater litigation risk on a default option such as a life-cycle fund that may lose money in the short-term when it can enjoy a liability safe harbor with a capital preservation investment? Their employees will be worse off, but their litigation exposure will be materially reduced. This is precisely why such a large percentage of plan sponsors have used capital preservation funds as default options.
“In short, including stable value as default options would leave millions of Americans poorer during their retirement years.”