Members of the House today passed a version of H.R. 6757 that includes a retirement plan annuitization provision sought by the American Council of Life Insurers (ACLI), the Insured Retirement Institute (IRI), and other financial services organizations.
The current draft of the “Family Savings Act of 2018″ bill includes a replacement for Section 203.
The old version of Section 203 calls for an independent organization to review the Pension Benefit Guaranty Corp. (PBGC) premiums.
The version of Section 203 in the bill that passed in the House would create a fiduciary safe harbor for defined contribution retirement plan sponsors or other fiduciaries when the fiduciaries choose a company to provide a plan annuitization option.
A copy of a file that shows the new version of Section 203 is available here.
What was the vote on H.R. 6757 like?
House members voted 240-177 to pass the bill.
Republicans voted for the bill 230-0.
Democrats voted 10-177 against the bill.
The list of Democrats who voted for the bill includes, Rep. Jared Polis, D-Colo., who is running for governor in Colorado. Polis has voted with liberal Democrats on most issues.
What is an ‘annuitization option’?
An annuitization option is a feature in a 401(k) plan or other defined contribution retirement plan that lets the participant convert part or all of the participant’s account value into a stream of income.
The feature creates, in effect, an in-plan annuity.
What is a ‘safe harbor’?
A safe harbor is a provision that protects certain people who take specified actions against legal action.
The fiduciary safe harbor provision in H.R. 6757 Section 203 would provide protection for retirement plan sponsors, or the plans’ other fiduciaries, that choose companies to provide in-plan lifetime annuitization options.
Prudential Financial Inc. and other companies have identified employers’ fear of getting in trouble for choosing a poorly performing annuitization option provider as a major obstacle to getting annuitization options into retirement plans.
What’s in Section 203?
To qualify for the safe harbor, a fiduciary could not just choose ABC Annuitization Company from Google search results.
The plan fiduciaries would have to engage “in an objective, thorough and analytical search” to identify the insurer providing the guaranteed retirement income contract used to provide the annuitization option.
The fiduciary would not have to choose the lowest-cost provider. The fiduciary would have to consider the provider’s financial statements, reserve levels, and standing with state insurance regulators.
The provision defines “insurer” as “an insurance company, insurance service, or insurance organization, including affiliates of such companies.”
What are the prospects for the bill in the Senate?
Policy watchers at Lock Companies, an insurance and benefits broker, are predicting that Senate Majority Leader Mitch McConnell is unlikely to let H.R. 6757 come up for a vote on the floor of the Senate for the midterm elections, Nov. 6.
— Read House Panel OKs Retirement Bill That Leaves Life Insurers Hungry, on ThinkAdvisor.