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Retirement Planning > Retirement Investing

Should Annuity Products Get a Fiduciary Safe Harbor? Bloink & Byrnes Go Thumb to Thumb

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Robert Bloink and William H. Byrnes Robert Bloink and William H. Byrnes

The set of tax reform bills collectively known as “Tax Reform 2.0” has been steadily making its way through Congress, and includes many retirement-related provisions that could substantially impact clients.

One of the more recent amendments proposed by Republicans in the House would provide for a fiduciary rule safe harbor for retirement plan sponsors who include lifetime income provisions as an option for plan participants. This safe harbor would provide specific steps that the plan sponsor would be required to take in order to avoid future fiduciary liability claims stemming from an annuity product’s performance.

Although the overall tax reform package is unlikely to be approved by the Senate because of a variety of provisions included within the legislation, making it easier to include lifetime income options within defined contribution plans is an idea that has frequently been debated in Congress.

We asked Professors Robert Bloink and William Byrnes, who are affiliated with ALM’s Tax Facts, and hold opposing political viewpoints, to share their opinions about this fiduciary safe harbor provision.

Their Votes:


Their Reasons:

Below is a summary of the debate that ensued between the two professors.

Byrnes: Limiting the future fiduciary liability of plan sponsors is probably the only way we’re going to get lifetime income options into defined contribution plans. Anyone who reads the news knows how frequently plan sponsors are being sued by plan participants who are dissatisfied with one aspect or another of their retirement plans. I think this new introduction is a positive step toward encouraging lifetime income, or annuity, options in commonly used retirement plans.

Bloink: I think the limitation on liability doesn’t do enough to require plan sponsors to take this investment option extremely seriously. We do need more lifetime income options for defined contribution plan participants, but we also need to make sure that people are getting access to sound investment products that will perform well over time—otherwise we’re doing a disservice to these individuals, who are placing their trust in the plan sponsor in delegating that major investment decision.


Byrnes: The safe harbor specifically requires plan sponsors to engage in thorough analysis when choosing the insurance company that will supply the annuity contracts. This also specifically includes a cost-benefit analysis, and requires the plan sponsor to obtain written representations from the insurance company that they are complying with laws and regulations that apply to insurance companies. That’s built-in protection for plan participants.

Bloink: We’ve lost the DOL fiduciary rule already. Choosing a lifetime income option that will control distributions of plan participants’ hard-earned retirement dollars over a period that can span decades is a huge undertaking, and I can’t see how we can limit liability by allowing plan sponsors to go down a checklist of requirements that would allow them to be entirely shielded from liability. Too many variables can come into play in these situations.


Byrnes: This is definitely a compromise solution, but we need to weigh the costs against the potential benefits of encouraging lifetime income options in DC plans. In today’s litigious environment, the costs are simply too high for most plan sponsors to take the risk of a future lawsuit. We don’t have traditional pensions that are available on a widespread basis anymore.  This is a way to give people the potential for a lifetime paycheck during retirement. I think it’s worth the risk.

Bloink:  And I think we need additional protections.  Professor Byrnes seems to agree that the stakes are high here. Eliminating all potential for future fiduciary liability if plan sponsors satisfy these very basic requirements seems extreme. Fiduciary liability is a powerful motivator to make sure that the lifetime income options we’re offering are actually the best options for clients.


Byrnes: Finding the very best option for a large group of plan participants is untenable at this point. This rule does make sure that we’re providing good lifetime income options—this is as opposed to absolutely NO lifetime income options. It’s a step in the right direction toward ensuring that plan participants have these options.

Bloink: We have to remember that many retirement plan participants are not in the same position as plan sponsors that would allow them to evaluate the contract option and potential consequences of the lifetime income solution that’s being presented to them. This is a classic example of why we have fiduciary liability in the first place.  Plan participants have to be able to trust plan sponsors to act in their best interests, and this proposal would essentially shield the plan sponsor from liability in many cases where they fail to act accordingly.

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