Recently, financial industry professionals and organizations
have stepped up and said that the Department of Labor’s (DOL) default 401(k) rules are confusing and potentially harmful. Some of the most prolific among
those who spoke out include well-known worker advocacy groups and retirement
service providers, all of whom claim that the default options could lead to
poor, misinformed choices and reduced nest eggs when all is said and done.
Those protesting the rules want the DOL to clarify 401(k)
rules, especially as they relate to defined contribution plan sponsors. They
think that plan holders need to be made fully and clearly aware of how their
ages at the time they select qualified default investment alternatives affect
their investments and of how they can be protected from participant suits
and/or investment losses.
Right now, protestors argue, those rules are not clearly
laid out or easy to understand, which many fear could lead to reduced financial
security and retirement savings for plan holders.
What the rules say, as of now, is that three different types
of default investments can be used as liability protection- target-date funds,
managed account services with customized asset allocations, and balanced funds.
However, until plan holders really understand those rules,
what they mean, and more importantly, what they mean for them specifically,
there is danger. Hopefully, the DOL will do a little re-wording and clarifying,
but until that happens, if it does, working with a qualified financial professional
who can help you to understand those hard-to-understand rules is the way to go.
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