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ACLI To DOL: Include Guaranteed Products For Automatic Enrollment

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The American Council of Life Insurers is asking the Department of Labor to include guaranteed insurance products among those that could be used for automatic enrollment under the Pension Protection Act.

The ACLI argued its case in a comment letter on proposed regulations for implementing the Pension Protection Act, which was signed into law in August, specifically clarifying which products are considered as qualified default investment alternatives, or QDIAs, that could be used in automatic enrollment plans.

“Group annuities, especially fixed annuities and other guaranteed insurance products, have been among the foremost investment products offered to pension plans subject to regulation under the Employee Retirement Income Security Act of 1974, as amended,” wrote Ann Cammack, ACLI’s senior vice president for tax and security, in the comment letter. “Regrettably, under the Department’s proposed regulation, questions have arisen regarding the permissibility of offering annuities and other guaranteed insurance products as default investment alternatives.”

Specifically, ACLI complains that the department’s failure to list guaranteed insurance products such as fixed annuity contracts, stable value funds and other guaranteed products on the list of products that can be considered as QDIAs is “an unacceptable shortcoming in the proposed regulation that must be addressed.”

The use of guaranteed products as a default investment for plans is already widespread and recognized by the department in other areas, Cammack notes in the letter, citing a survey of 1,900 defined contribution plan sponsors conducted by the Vanguard Center for Retirement Research that found more than 81% of plans with default investment options selected a fixed income vehicle.

“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,” she added. “Specifically, the department’s regulations on automatic rollovers provide safe harbor relief in connection with cash outs 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 also argued that the language of the Pension Protection Act itself supports including guaranteed 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 wrote, adding it is “simply unfathomable” to the ACLI that the department would read the statute to mean that guaranteed products should not be included as QDIAs. “If Congress had deemed guaranteed products unworthy of QDIA status,” she said, “Congress would have explicitly said so.”

Additionally, Cammack said, ACLI is concerned that the proposed regulations would hamper innovation in the market by establishing only certain existing products as QDIAs. “Instead, the department’s selection and description of QDIA vehicles should be flexible and based on more general criteria rather than specific conditions,” she said. “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.”

ACLI also requested a public hearing on the proposed regulations to discuss what Cammack called the “significant concerns” of ACLI members.


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