The American Council of Life Insurers is asking the U.S. Department of Labor to make guaranteed insurance products eligible for use in Pension Protection Act automatic-enrollment programs.
The idea that the Labor Department would exclude group annuities, stable value funds and other guaranteed insurance products from its proposed list of “qualified default investment alternatives,” or QDIAs, is “simply unfathomable” to the ACLI, Ann Cammack, an ACLI senior vice president, writes in a comment letter on behalf of the ACLI.
“If Congress had deemed guaranteed products unworthy of QDIA status, Congress would have explicitly said so,” Cammack writes.
Cammack is asking the Labor Department to schedule a public hearing on the proposed regulations to address its members’ concerns about the way the department appears to be implementing the PPA.
The PPA, signed in August, includes a provision encouraging employers to enroll employees in retirement savings plans automatically. At employers with automatic enrollment programs, employees will have to take active steps to get out of the plans.
The Labor Department recently proposed PPA implementation regulations that provide a list of QDIAs, or product classes suitable as default investments for employees who have been enrolled in retirement plans automatically, without indicating any investment preferences.
Many plans already use guaranteed insurance products as default investments, and the Labor Department has endorsed use of guaranteed insurance products as default investments on many other occasions, Cammack writes.
“The department itself has recognized in numerous circumstances that the use of capital preservation funds will satisfy ERISA’s fiduciary requirements where participants have not made an affirmative investment election,” Cammack writes.
“Specifically, the department’s regulations on automatic rollovers provide safe harbor relief in connection with cashouts of small account balances of terminated employees that are rolled over into an individual retirement account, which in turn is invested in a product designed to ‘preserve principal and provide a reasonable rate of return, whether or not such return is guaranteed, consistent with liquidity,’” Cammack writes.
Cammack adds that the language of the PPA itself supports including guaranteed insurance products as QDIAs.
“We are surprised and frustrated that the department failed to take into account the explicit language of the PPA, specifically directing the department to issue regulations that address the ‘appropriateness of designating default investments that include a mix of asset classes consistent with capital preservation or long-term capital appreciation, or a blend of both,’” Cammack writes.
The ACLI also is objecting to the idea of the Labor Department allowing only existing product types to be QDIAs.
“The department’s selection and description of QDIA vehicles should be flexible and based on more general criteria rather than specific conditions,” Cammack writes. “In this way, the regulation will not have the unintended consequence of stifling the creativity that could lead to the next generation of innovative retirement products.”