Insurers are still trying to persuade the U.S. Department of Labor to add annuities, stable value funds and guaranteed investment contracts to the list of acceptable investment choices for employees who are enrolled in 401(k) plans automatically.
The Employee Benefits Security Administration, an arm of the Labor Department, could come out with a final rule establishing a list of "qualified default investment alternatives" for automatic plan participants any day now.
The QDIA list that EBSA proposed in September 2006 included balanced mutual funds, lifecycle funds and diversified portfolios managed by outside advisors – but not fixed annuities, variable annuities with principal guarantees, guaranteed investment contracts or stable value funds.
The American Council of Life Insurers, Washington, and individual life insurers hope to convince regulators that products that offer principal protection and a minimum rate of return are at least as worthy of a place on the list as products that provide no guarantees.
"Not everyone's retirement needs are the same," says ACLI spokesman Whit Cornman. "Risk-averse individuals, like those close to retirement, will not want to subject their retirement balances to the risks inherent in equity investments. Guaranteed products are an appropriate option for these individuals," he added.
Labor unions, retirement plan sponsors and members of Congress have submitted comment letters making similar arguments, Cornman says.
The Investment Company Institute, Washington, the main mutual fund industry trade group, is arguing that the proposed QDIA list is great the way it is.
"The Pension Protection Act was designed to enable sponsors to select investments that would deliver on long term retirement needs," says ICI General Counsel Elizabeth Krentzman. "Because of the stock exposure, we think this provides the appropriate options."
Even though investment options that include stock and no investment guarantees may create some risk of loss of principal, over the long run, they also appear to offer the potential for generating the highest average returns, the fund companies say.
