What are “default” investments, and why do 401(k) plans need them?
Under some circumstances, an employee enrolled in a 401(k) plan fails to give affirmative instructions for investing his or her account. In those cases, a plan needs default investments to invest that employee’s contributions. All 401(k) plans have default investments, but they are especially important in a plan that uses automatic enrollment. In such plans, employees receive advance notice that they will be automatically enrolled in the plan, along with information about the default investment and how to invest in other plan investment options. If they do not take the opportunity to select investments for their accounts, the plan will invest their contributions and any employer contributions on their behalf in the plan’s default investment.
