A bill has recently been reintroduced in Congress that would allow retirement plan sponsors to use annuities as a default investment option for plan participants who haven’t made an investment election.
Under current law, annuities are not an option that can be offered as a qualified default investment alternative (QDIA), which are a type of investment option used for plan participants who have not made their own investment decisions with respect to retirement plan funds. The Lifetime Income for Employees (LIFE) Act, which was originally introduced in 2020, does not appear to specify the exact types of annuity that could be used for this purpose.
We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about allowing an annuity option to function as a QDIA.
Below is a summary of the debate that ensued between the two professors.
Bloink: Much of the time, participants who fail to make investment elections for their 401(k) funds simply aren’t paying attention to their retirement income options. It makes sense that plan sponsors should be able to default these participants into an investment that provides a heightened level of security, meaning annuities that provide for lifetime income — seeing as that’s what saving in a 401(k) is intended to provide.