WASHINGTON--New Labor Department guidance assures employers that they are protected from fiduciary liability for past contributions into so-called stable-value funds for employees enrolled automatically in 401(k) plans.

That guidance clarifies final Labor Department rules that went into effect in December, which laid out default fiduciary-protected investments: life-cycle, targeted retirement-date, balanced and professionally managed funds.

The final rules also gave fiduciary protection for contributions that were made to stable-value funds before the new rules were adopted. But those rules--in the way stable-value funds were described--unintentionally may have excluded the funds from the fiduciary liability protection intended for prior contributions, the Labor Department acknowledged.

Under the final rules, a stable-value fund must guarantee principal and a rate of return that is generally consistent with intermediate investment-grade bond earnings. Such funds also must be guaranteed by a state- or federally regulated financial institution.

Few if any stable-value funds provide such guarantees, benefit experts say.

By contrast, the field assistance bulletin removes the principal and investment return guarantees. Instead, it defines stable-value funds as those that are intended to preserve principal, provide a rate of return that is generally consistent with intermediate investment-grade bonds and products that are backed by state- or federally regulated institutions.

"This is a big improvement. Plan sponsors will be able to use products that will clearly qualify," said Robyn Credico, national director of defined contribution consulting at Watson Wyatt Worldwide in Arlington, Va.

The clarification applies to billions of dollars that employers contributed to stable-value funds prior to the final rules. Except for a brief period after an employee is automatically enrolled in a 401(k) plan, future stable-value fund contributions through automatic enrollment have no fiduciary protection.

Automatic enrollment plans have grown rapidly in recent years and up to 50% of employers now offer them, according to Hewitt Associates Inc. in Lincolnshire, Ill.

"They definitely have become mainstream," said Bill McClain, a principal with Mercer L.L.C. in Seattle. Factors fueling the growth include the decline of defined benefit plans, making 401(k) plans employers' sole retirement savings plan and increasing the importance of employees' contributing to the plan to assure sufficient retirement income.