Choice Architecture and the Locus of Fiduciary Obligation in Defined Contribution Plans

54 Pages Posted: 15 Dec 2012  

Dana M. Muir

University of Michigan - Stephen M. Ross School of Business

Date Written: December 2012

Abstract

The insights of choice architecture have led to expanded use of default settings in defined contribution (DC) plans in both the United States and Australia. The two countries have taken somewhat similar approaches to the content of default investment products. However, they differ significantly in how they allocate the legal responsibilities associated with those default investment products. This paper compares the two approaches, particularly regarding the role of disclosure and 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 is inadequate to negate conflicts of interest and investment risk. Second, fiduciary responsibility for default investment products should be co-located with investment expertise and management. The paper suggests development of a new investment product, Safe Harbor Automated Retirement Products (SHARPs), based on these lessons.

Keywords: fiduciary, 401(k), investment, QDIA

JEL Classification: K31

Suggested Citation

Muir, Dana M., Choice Architecture and the Locus of Fiduciary Obligation in Defined Contribution Plans (December 2012). Ross School of Business Paper No. 1183. Available at SSRN: https://ssrn.com/abstract=2188932 or http://dx.doi.org/10.2139/ssrn.2188932

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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