Default Lines
Another enhancement, if implemented correctly, is a DoL provision issued under the PPA that allows employers to be less risk-averse in terms of the investment choices they offer. The provision relieved employers of their fiduciary liability to employees who pick options that perform poorly.

Many plan sponsors have traditionally provided a menu of investment choices heavy on fixed-income, stable-value options, believing the safe course was to help participants preserve capital. Cognizant that such options breed low returns, the DoL issued rules in September 2006 that relieved employers of their fiduciary responsibilities as long as worker 401(k) contributions are invested in a Qualified Default Investment Alternative. The QDIAs must be highly diversified portfolios and must not contain employer securities among the mix of investments. Sponsors are limited to three investment types — balanced funds, lifestyle or targeted funds, and managed accounts. "If an employee is defaulted into one of these investments, there is greater potential investment growth, and they have someone managing their money for them," says Robyn Credico, national director of defined-contribution consulting at Watson Wyatt Worldwide.

Regardless of where a company channels employees' funds, more companies seem interested in default enrollment. At Land O'Lakes Inc., a $10 billion dairy and agricultural cooperative, participation has gone from 70 percent to 93 percent, according to Bob Tomaschko, director of compensation, retirement, and human-resources management systems. The company enrolls employees at 5 percent of their salaries in order to receive the company's maximum 4 percent match. The goal, Tomaschko says, was not simply to provide the maximum match, but to "help employees achieve the required savings rates in order to have the income they will need at retirement."

Russ Banham is a contributing editor of CFO.

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