Page 19 - Investment Advisor April/May 2022

ANNUITIES UPDATE

By Robert Bloink and William H. Byrnes

Debate: Should Annuities Be Permitted as

a Default 401(k) Option?

Two professors discuss legislation that would allow retirement plan

sponsors to use annuities as a default investment.

bill has recently been reintro- take an interest later, as they begin to
duced in Congress that would approach retirement age. We shouldn’t
A allow retirement plan sponsors allow plan sponsors to direct their
to use annuities as a default investment funds into any type of investment that
option for plan participants who haven’t can’t later be undone without signifi-
made an investment election. cant consequences.
Under current law, annuities are Bloink: This legislation really isn’t
not an option that can be offered as making any huge changes. Post-Secure
a qualified default investment alter- Act, annuities are likely to become a
native (QDIA), which are a type of much more common investment option
investment option used for plan par- for retirement accounts. This legislation
ticipants who have not made their own merely reflects that reality and allows
investment decisions with respect to the plan sponsor to have all available
retirement plan funds. The Lifetime options at their disposal when it comes
Income for Employees (LIFE) Act, plan participants into what might be time to make QDIA selections.
which was originally introduced in an irrevocable or illiquid investment. I Byrnes: We need a much more
2020, does not appear to specify the don’t even think plan sponsors would nuanced and specific safe harbor that
exact types of annuity that could be be comfortable making that decision if would discuss the types of annuity
used for this purpose. this new provision does become law. It’s QDIAs that would be available — and
We asked two professors and authors one thing to direct a participant’s retire- when those options would be consid-
of ALM’s Tax Facts with opposing politi- ment assets into a diversified invest- ered appropriate. If the plan partici-
cal viewpoints to share their opinions ment fund; it’s quite another to lock pant has the opportunity to choose an
about allowing an annuity option to them into an annuity. annuity investment option, that should
function as a QDIA. Bloink: Of course plan sponsors be sufficient. In reality, plan sponsors
Bloink was in favor while Byrnes was should be required to remind plan par- are unlikely to choose this option over
not. Here is a summary of the debate ticipants of their ability to select their tried-and-true diversified investment
that ensued between the two professors. own investments and should also noti- fund options as QDIAs.
Robert Bloink: Much of the time, fy those participants in advance about
participants who fail to make invest- the default investment. But when it Robert Bloink, LL.M., has taught at the Texas
ment elections for their 401(k) funds comes to selecting default investments, A&M University School of Law and the
simply aren’t paying attention to their an annuity option should definitely be Thomas Jefferson School of Law; in the past
retirement income options. It makes in the mix. This option would greatly decade, Bloink has initiated $2B+ in insur-
sense that plan sponsors should be able increase access to lifetime income-pro- ance & alternative asset class portfolios, and
to default these participants into an ducing products for people who might previously served as a senior attorney in the
investment that provides a heightened not otherwise be paying attention to IRS Office of Chief Counsel for the Large- and
level of security, meaning annuities that those options. Mid-Sized Business Division. William Byrnes,
provide for lifetime income — seeing as Byrnes: Not every plan participant LL.M., CWM, is an executive professor and
that’s what saving in a 401(k) is intended is paying attention to the direction of associate dean of special projects at the Texas
to provide. their retirement funds every step of A&M University School of Law. A pioneer of
William H. Byrnes: Plan sponsors the way, of course. That doesn’t mean online legal education, he also is the author or
shouldn’t have the authority to default that these plan participants won’t co-author of 20 tax books and legal treatises.

APRIL/MAY 2022 INVESTMENT ADVISOR 17