Monday, November 25, 2013
Dana M. Muir (Stephen M. Ross School of Business at the University of Michigan) has just posted on SSRN her recently published piece in the Iowa Law Review entitled: Choice Architecture and the Locus of Fiduciary Obligation in Defined Contribution Plans.
Here is the 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.
I have had the privilege of reading this piece previously and like all of Dana's piece, it does a remarkable job identifying a problem based on a comparative analysis and then providing a practical, on-the-money solution to the problem that all ERISA stakeholders should be able to embrace as an effective approach to these problems with defined contribution plans. I hope there are perceptive legislators out there paying attention who will sponsor such legislation soon in order to improve the US occupational pension system for all workers.