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

Muir, Dana M.
November 2013
Iowa Law Review;Nov2013, Vol. 99 Issue 1, p1
Academic Journal
The insights of choice architecture have produced regulatory and voluntary changes that have expanded the use of default settings in defined contribution plans, such as 40I(k) plans. Ai a result, increased numbers of employees now save for retirement through 40I(k) plans and many save more money. The current approach to investment default settings, however, has been less successful in achieving appropriate levels of investment risk. In addition, many employers, particularly small employers, remain reluctant to offer joifk) plans. This Article shows that these two problems--selection of appropriate default investments and plan sponsorship levels--are linked. This is because the employer-centric trust model used in 40I (k) plan regulation inherently limits the success of choice architecture principles. Afier examining three major proposals to reform the 40I(k) plan system, this Article instead recommends that the locus of fiduciary obligation for default investments be reassigned from employers to the financial services firms that offer those investments.


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