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Statement of Need: Section 404(c)(1) of ERISA provides that, where a participant or beneficiary of an employee pension benefit plan exercises control over assets in an individual account maintained for him or her under the plan, the participant or beneficiary is not considered a fiduciary by reason of his or her exercise of control and other plan fiduciaries are relieved of liability under part 4 of title I of ERISA for the results of such exercise of control. The Department has previously issued regulations under section 404(c)(1) describing the circumstances in which 404(c)(1) applies to a transaction involving a participant’s or beneficiary’s exercise of control over his or her account. This rulemaking would amend those regulations to respond to a need on the part of plan sponsors and fiduciaries for guidance on the selection of default investments for plan participants who fail to make an investment election. Such guidance would also improve retirement savings for millions of American workers.

Summary of the Legal Basis: Promulgation of this regulation is authorized by sections 505 and 404(c) of ERISA

Alternatives: Regulatory alternatives will be developed once determinations have been made with regard to the scope and nature of the regulatory guidance that will be necessary to provide for default investment options when a participant in a 401(k) or similar individual account plan fails to direct the investment of his or her account.

Anticipated Costs and Benefits: Costs and benefits of regulatory alternatives will be estimated and taken into account in the development of the proposed regulation. Intended benefits include increases in 401(k) plan participation rates, more beneficial asset allocations of many participants’ accounts, and attendant improvements in retirement security.

Risks: Failure to provide guidance on default investment options for individual account plans may result in diminished retirement savings for the many participants who fail to make an investment election with regard to their accounts.