Looking for information on pros and cons of selecting a default fund for Plan

[JanetM]

Can any of you wonderful folks point to some research or survey results on this topic. Looking for views -pros and cons - of stable value vs. balanced vs s&p500.

Many thanks!

[Guest Ken Bonus]

I assume that by "default fund" you are referring to the situation where a participant who has the right to direct the investment of his or her account fails to give any investment direction. In that situation, I do not believe that you can routinely default them to a fund (other than perhaps a lifestyle type fund). This is because the Plan fiduciaries still have a fiduciary obligation to make prudent investment decisions for this participant. To illustrate my point, let's consider two participants who fail to give investment directions. One is age 25 and the other is age 60. It would poor investment planning to put the age 25 participant into a money market account and likewise to put the age 60 participant into an aggressive growth equity fund.

[JanetM]

Yes that is what I mean by default fund. I know the drawbacks to the sponsor selecting the fund and retaining the liability. Am looking for research on the topic so I can present the issue to the board. Need facts and figures to sway them to change how we do things now.

[Demosthenes]

Here area couple of links that might help. At least one of the providers assumes fiduciary responsibility.

http://www.plansponsor.com/pi_type10/?RECORD_ID=28358

ProNvest Expands Rollover Services

February 7, 2005 (PLANSPONSOR.com) - As an extension of their advice, managed account, and rollover services, Atlanta-based ProNvest has announced several product enhancements.

Through its data interface with SunGard (see SunGard, ProNvest Unveil Automatic Rollover Service), ProNvest is able to assume fiduciary responsibility on behalf of plan sponsors and to coordinate directly with plan administrators to identify participants eligible for mandatory rollover, as well as coordinate all data transfer and notification requirements.

http://www.plansponsor.com/pi_type10/?RECORD_ID=28424

Millennium Unveils Automatic IRA Solution

February 14, 2005 (PLANSPONSOR.com) - Millennium Trust Company has unveiled an automatic rollover solution for missing and non-responsive participants of employer-sponsored retirement plans.

http://www.plansponsor.com/pi_type10/?RECORD_ID=27857

E-Trade to Provide Rollover IRA Accounts Mandated by EGTRRA

December 20, 2004 (PLANSPONSOR.com) – E-Trade Securities has announced that it will provide individual retirement accounts to 401(k) investors with assets that fall under the September amendment to the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001.

Beginning in March 2005, through an exclusive agreement with rollover solutions provider Wealth Management Systems, Inc., E*TRADE Securities will accept rollover assets from 401(k) accounts belonging to participants who have changed or left their jobs and missed their 401(k) rollover deadline. The firms

[KJohnson]

From Benefitslink in August '04 and link to 20 page Vaguard Article

https://institutional5.vanguard.com/VGApp/i...efaultFund.jsp#

8/5/2004: Selecting a Default Fund for a Defined Contribution Plan (Vanguard Center for Retirement Research)

Excerpt: "Many plan sponsors currently choose a fixed-dollar fund as the default option for their defined contribution plan. This report analyzes the legal and investment considerations underlying the selection of a default fund, and suggests that in light of the 'prudent investor' standard that governs such fiduciary decisions, a better choice for a default fund is one or more balanced investment options."

[Belgarath]

Can you instead simply have your deferral election, or some communication, state that no deferral election is deemed valid until investment election is made by the participant? But maybe this creates other problems that are worse than the one you are trying to solve?

[JanetM]

KJohnson - that is exactly what I am looking for.

Belgrath - the issue arises from 3% Nonelective and profit sharing contributions. Even if we tell them they will be getting the contributions they don't always make investment elections. Right now we tell them that by not selecting investments they are electing the X fund.