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.
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.