Human Capital & Careers

Fund Advocates Take a Shot at Insurers

Stable value funds in 401(k) plans would "leave millions of American's poorer," say consumer groups that are pushing for more choice among default ...
Stephen TaubJune 19, 2007

Two consumer groups fired off a joint letter to the White House Office of Management and Budget to drum up support for a Department of Labor proposal that would exclude stable value funds and money market funds from being considered qualified default investments in 401(k) plans. Both asset classes, as well as other capital preservation funds, are deemed to be very low-yielding insurance products, notes the Associated Press.

“Including stable value as default options would leave millions of Americans poorer during their retirement years,” states the letter written by The Consumer Federation of America and Fund Democracy, advocates for mutual fund investors. The groups urged OMB to reject a plan that, from their perspective, would support insurance companies at the expense of investors.

The issue became a controversy last year when the DoL proposed a list of acceptable default investment options for 401(k) participants who had not selected how to invest deferred savings plans created by their employers. Reportedly, insurance companies opposed the DoL plan because it excluded their industry’s products, such as guaranteed investment contracts and other stable-value insurance products.

In their letter, the mutual fund groups urgeed the OMB to “reject these self-interested arguments and instead support the Department of Labor’s proposal.” The letter stressed that many plan participants have placed their assets in inappropriate instruments that generate lousy returns. “Consistent with the intent of Congress, the [Labor] Department has rightly resisted those who would undo Congress’s efforts by recreating one of the very problems the Act was intended to solve,” the consumer groups insisted in the letter.

“Including stable value and money market funds as default options would directly contradict Congress’s clear direction that default options include a ‘mix of asset classes,’ they added. “Moreover, while a stable value fund would certainly be an appropriate component in a “mix of asset classes” that was designed to emphasize capital preservation, it would not be appropriate as the exclusive component of a qualified default option.”