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Retirement Planning > Retirement Investing

Biggest Barriers to Lifetime Income Adoption: Fiduciary Liability, Insurer Insolvency

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Retirement planning experts told the Departments of Labor (DOL) and Treasury on Tuesday that the main obstacles to widespread adoption by plan sponsors of offering lifetime income options within retirement plans is the lack of clarity provided by DOL and Treasury regarding plan sponsors’ fiduciary liability in selecting and monitoring these types of offerings, and issuer insolvency.

DOL and Treasury are holding two days of hearings–Tuesday and Wednesday–to get feedback from retirement planning experts on how, and if, the agencies should update rules under the Employee Retirement Income Security Act (ERISA) and the plan qualification rules under the tax code to facilitate access to lifetime income options within employer-sponsored and individual retirement plans. The two days of hearings on lifetime income options come on the heels of the DOL’s request for information (RFI) earlier this yearon how best to integrate lifetime annuities and other income-generating options into employer-sponsored plans and IRAs. The DOL received 700 comment letters.

Christine Marcks, president of Prudential Retirement, who testified at the Tuesday hearing, told AdvisorOne in an interview after her testimony that “the adoption rate [of lifetime income options by plan sponsors] is constrained by the lack of clarity on the fiduciary issue in particular.” DOL and Treasury currently have an interpretive bulletin, 95-1, on fiduciary responsibility “but it’s vague,” she says. “We’re hoping [DOL and Treasury] clarify it.”

As it stands now, only four firms–Prudential, John Hancock, Great-West Life & Annuity Insurance Co., and Genworth–offer in-plan lifetime income options.

But The Hartford has also developed an in-plan lifetime income option and the company is “currently focused on bringing” that into the plans The Hartford offers to other corporations, says Patricia Harris, assistant VP of Retirement Income Solutions at The Hartford.

Harris is to testify on behalf of the Insured Retirement Institute (IRI) on the second day of the hearings, but she told AdvisorOne the day before her testimony that there does indeed need to be more clarity regarding “the fiduciary safe harbor that exists today for selection of the providers of annuities or guaranteed income options, both at distribution as well as some of the other options that are in the plan as an investment option.” More clarity needs to be provided as to “how a plan sponsor gets comfortable with their selection.”

Specifically, Harris continues, there’s one requirement in the safe harbor today that says “the plan sponsor is supposed to be able to assess the ability of the annuity provider to make all future payments under the annuity contract.” So plan sponsors, she says, “are supposed to be able to look into the future and guarantee the insurer can meet all of its obligations.” The current safe harbor, in essence, requires the “plan sponsor to have some liability in terms of the future financial strength of that company. That’s a very difficult standard, and … that’s a huge barrier for plan sponsors to get comfortable” with.


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