Recent amendments to the Employee Retirement Benefit Security Act (ERBSA) will require sponsors of defined contribution (DC) retirement plans to establish one or more investment options within the plan from which each member must choose one as their pre-designated (or default) investment option. Currently, the majority of DC plan assets are invested in principal interest guaranteed products (PIGPs), largely due to plan members’ indifference in selecting an investment fund. PIGPs provide stable, but low, investment returns, and the new requirement aims to promote DC plan investment in other types of funds that are expected to provide higher, if more volatile, long-term returns to support retirement savings.
Though pension providers are still in the process of developing new potential investment fund options, employers should begin considering how they will comply with the new requirements. Employers with a single retirement plan provider may want to consider adding another provider for diversity or evaluate their current provider’s offering of such products.
