Two years ago, the U.S. Department of Labor was fighting to put indexed annuities in the retirement services doghouse.
Now, issuers are hoping they can persuade DOL officials to let managers of 401(k) plans and other types of defined contribution plans use indexed annuities as qualified default investment alternative (QDIA) options.
Elizabeth MacGowan, a vice president at National Life Group, presented that idea earlier this week in Washington, at a meeting of the ERISA Advisory Council. MacGowan testified at a council hearing on behalf of the Indexed Annuity Leadership Council (IALC).
The council advises DOL officials on issues related to the Employee Retirement Income Security Act of 1974 (ERISA), a law that governs large employers health and retirement plans.
Congress blessed the creation of QDIAs by including a provision in the Pension Protection Act of 2006 that freed employers from responsibility for losses if a plan participant who failed to actively choose any investment options ended up with assets parked in the plan’s QDIA.
The regulators who developed the QDIA option wanted QDIAs to offer younger participants enough exposure to risk to allow for asset growth. Originally, regulators declined to let employers use same very safe, low-return products, such as stable value funds as QDIAs.
Today, the typical QDIA is a target-date fund, a risk-based lifestyle fund or a risk-based lifestyle fund. Some plan sponsors wrap the QDIA funds in a variable annuity wrapper.
MacGowan asked the ERISA Advisory Council to help employers use more types of annuities as QDIAs.