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Default Settings in Defined Contribution Plans – A Comparative Approach to Fiduciary Obligation and the Role of Markets

23 Pages Posted: 13 Jan 2012  

Dana M. Muir

University of Michigan - Stephen M. Ross School of Business

Date Written: January 1, 2012

Abstract

Both the United States and Australia have increased the use of default settings in defined contribution (DC) plans such as 401(k)s. However, policy makers in the two countries have taken different approaches to important aspects of default investment products. This article discusses the regulation of those default investment products particularly regarding the assignment of fiduciary responsibility. It concludes that Australia’s approach offers two lessons for the U.S. First, disclosure to and education of participants who are defaulted into investment products appears to be of limited value to those participants. Second, to the extent possible, the locus of fiduciary responsibility for default investment products should be on those who are expert on and manage those products.

Keywords: defined contribution, pension, fiduciary, automatic enrollment, qualified default investment alternatives

JEL Classification: K31, K22, K20

Suggested Citation

Muir, Dana M., Default Settings in Defined Contribution Plans – A Comparative Approach to Fiduciary Obligation and the Role of Markets (January 1, 2012). Ross School of Business Paper No. 1168. Available at SSRN: https://ssrn.com/abstract=1983945 or http://dx.doi.org/10.2139/ssrn.1983945

Dana M. Muir (Contact Author)

University of Michigan - Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
313-763-3091 (Phone)
313-936-8715 (Fax)

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