Fiduciary Implications: Using Re-Enrollment To Improve Target Date Fund Adoption

INTRODUCTION

An assumption underlying most 401(k) plans is that participants know how to invest their funds. Based on that assumption, most plan sponsors offer their participants an array of prudently selected mutual funds, provide investment education and conclude that they have fulfilled their responsibilities. Unfortunately, the assumption isn't correct — as either a matter of fact or a matter of law.¹

What plan sponsors² don't realize is that they are responsible — and thus potentially liable — for participant investing, even when the plan has delegated that authority to the participants and they have exercised control over the investments. (By "participant investing," we mean the allocation of the money in a participant's account among the plan's investment options.) There are a few exceptions (or "safe harbors") that we will discuss later. But, unless a plan satisfies these exceptions, plan sponsors and their fiduciaries (such as the committee members) are