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

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.