House Passes Bill With 401(k) Plan Annuitization Safe Harbor

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.

— Connect with ThinkAdvisor Life/Health on LinkedIn and Twitter.