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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. As part of the Pension Protection Act of 2006, section 404(c) was amended to provide relief accorded by section 404(c)(1) to fiduciaries that invest participant assets in certain types of investment alternatives in the absence of participant investment direction. The Pension Protection Act directed the Department to issue final default investment regulations under section 404(c)(5)(A) of ERISA no later than 6 months of the date of enactment of the Pension Protection Act. This rulemaking responds 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 were considered in developing the proposed rule and published in the Federal Register.

Anticipated Costs and Benefits: Costs and benefits of regulatory alternatives were estimated and taken into account in developing the proposed rule and published in the Federal Register.

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. In addition, failure to issue final default investment regulations under section 404(c)(5)(A) of ERISA no later than 6 months of the date of enactment of the Pension Protection Act would contravene section 624 of the Pension Protection Act.