Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Portfolio > Economy & Markets > Fixed Income

Lifetime Income: Witnesses Ask for Safe Harbors

Your article was successfully shared with the contacts you provided.

WASHINGTON BUREAU — If the government wants employer-sponsored retirement plans to offer lifetime income options, then Congress should protect employers against the risk that the options might produce disappointing results.

Witnesses delivered that message here during a lifetime income option hearing organized by the U.S. Treasury Department and the U.S. Labor Department.

Federal agencies have been talking about the idea of encouraging employers to offer lifetime income vehicles to participants in 401(k) plans and other defined contribution plans.

Representatives from insurers and employers emphasized the need for “safe harbors” plan sponsors can use when choosing annuity providers or other lifetime income product providers.

“As employers, we welcome the development of public policies that would facilitate the design of new lifetime income options that are less complex and have lower costs than available today,” said Janet Boyd, director of government relations for The Dow Chemical Company, Midland, Mich., who testified on behalf of the American Benefits Council, Washington.

“Major employer would like to help employees,” said Allison Klausner, an assistant general counsel at Honeywell International Inc., Morristown, N.J., who testified on behalf of the ERISA Industry Committee, Washington.

But employers “are concerned that any assistance that they provide will expose them to fiduciary liability under ERISA — that no good deed will go unpunished,” Klausner said.

Klausner said the Department of Labor should make it clear that employers can help employees choose a distribution option without subjecting themselves to fiduciary liability and litigation.

Christine Marcks president of Prudential Retirement, a unit of Prudential Financial Inc., Newark, N.J. (NYSE:PRU), said the Labor Department should extend the current safe harbor to cover a broad range of lifetime income options.

“The department should explicitly extend the safe harbor, and, if necessary, appropriately modify it, to include a broad range of guaranteed lifetime-income solutions,” Marcks said.

Marcks said the fact that a particular guaranteed-income solution is not a t

raditional immediate annuity should not be a factor in deciding whether the safe harbor applies.

“The more important consideration is whether the solution appropriately protects participants and beneficiaries against longevity and investment risks in a manner similar to a traditional distribution annuity,” Marcks said.

The Labor Department also should provide greater certainty about how frequently fiduciaries need to evaluate the financial strength of the provider of a guaranteed lifetime-income solution, Marcks said.

“We ask the Department of Labor to confirm that a fiduciary who evaluates the product provider’s financial condition at the time the provider is initially selected must conduct subsequent reviews,” Marcks said. “When conducting these ongoing reviews, the fiduciaries should evaluate the same factors initially considered and at a frequency appropriate to existing circumstances, but no less than once per year.”

Sheldon Smith, president of the American Society of Pension Professionals & Actuaries (ASPPA), Arlington, Va., said ASPPA supports common sense rules on the offering of lifetime income products and believes allowing many different kinds of market-driven products would be better than requiring employers to use a mandated option.

“While we don’t favor a particular product or retirement strategy, we believe regulation shouldn’t overload employers who sponsor retirement plans with a regimented product structure but instead offer guidance that allows for flexibility and innovation within the marketplace,” Smith said.

Smith said he favors creation of a “broad safe harbor for annuities and alternative products that extends beyond current regulations.” He said a meaningful safe harbor would give plan fiduciaries–particularly fiduciaries of small business retirement plans–the ability to rely on solvency determinations made by Employee Benefits Security Administration and the Treasury Department through a list of providers rated by federal or state regulators.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.