Springfield firm gives input to proposed labor regulation

The need for regulations is the result of the enactment of the Pension Protection Act of 2006, which was signed into law Aug. 17.

The new law calls for the automatic enrollment of eligible employees in a company’s retirement plan, a move that increases participation but also poses a problem regarding undirected participant investments, according to a news release from Pension Consultants Inc.

If participants don’t indicate an investment preference, their money must be put into a qualified default investment alternative, but the Pension Protection Act does not provide any guidance in regard to the selection of default investment alternatives. The Department of Labor’s recommendations, for which Pension Consultants provided input, are aimed at providing direction for the administration of undirected participant investments into default investment alternatives.

Pension Consultants responded to several areas of the proposed regulations, including the use of asset allocation models. The DOL’s proposed regulation restricts the plan fiduciary’s ability to use asset allocation models as default investment alternatives.

Pension Consultants believes, however, that asset allocation models comprised of funds that plan fiduciaries have selected based on risk, return and expense characteristics can result in a well-diversified, less-expensive default investment alternative.

Asset allocation models are often used as an effective and efficient method of allowing participants to easily allocate assets based on their age and tolerance for risk.

“The automatic enrollment provision established in the Pension Protection Act, and this proposed regulation, will have a lasting effect upon the pension industry and will increase the number of Americans with retirement savings,” said Brian Allen, president of Pension Consultants Inc., in the release. “Our suggestions to the proposed regulation should strengthen the final regulation and give better guidance to fiduciaries of retirement plans.”

The DOL is expected to issue final regulations in February; the regulations will take effect 60 days after they are published in the Federal Register.