The National Association of Insurance Commissioners (NAIC) is expected to appoint a group to work with federal agencies on persuading plan sponsors to accept that annuity providers are financially sound so they can meet Department of Labor (DOL) safe harbor and fiduciary requirements. A similar group has been in existence.
The new ERISA Retirement Income Working Group contemplated by the NAIC’s Life Insurance (A) and Annuities Committee would work with representatives of the DOL, the White House Council of Economic Advisors (CEA), the U.S. Department of the Treasury and any other appropriate federal agencies, in coordination with the NAIC Government Relations Leadership Council, according to a recent draft of the Life (A) Committee’s charges.
The goal is to ease plan sponsors concerns with annuities and their companies so they can feel like they are acting properly and prudently as fiduciaries, as the DOL safe harbor guidance requires.
Insurers would love to have lifetime guaranty and other annuity products become more of a suite of offerings in 401(k) plans but the DOL is of course interested in the solvency of the annuity providers.
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“ERISA requires fiduciaries to engage in a prudent process, which entails gathering and assessing relevant information and making a rational decision based on that information. But what if the committee just selects a well-regarded insurance company that has a long history of providing annuity benefits to thousands of annuitants?,” asks an article by Frederick Reish and Bruce L. Ashton, partners at Drinker Biddle, Los Angeles.
Evaluating insurance companies can be done, Reish suggests, by looking at their regulation, the company’s ratings over time and commitment to annuities — if they are lifetime income guarantee, as assessed by the number of guaranteed income contracts and total assets in guarantees.