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Friday, June 15, 2012
Witnesses urged the Department of Labor June 13 to
facilitate the use of annuities as lifetime income options at an ERISA Advisory
Council meeting on examining income replacement for retirees with defined
contribution plans, but stated that fiduciary duties relating to annuities
“Annuities are important because they protect against long
life,” said Olivia S. Mitchell an economist at the Pension Research Council and
Boettner Center for Pensions and Retirement Security at the University of
Pennsylvania's Wharton School in Philadelphia. “Half of people will outlive
their life expectancy,” she said.
Mitchell suggested strategies for maximizing the value of
annuities, including purchasing multiple annuities in different states and
purchasing annuities around age 70.
However, uncertainty about fiduciary duties associated with
annuities may prevent plan sponsors from encouraging plan participants to
purchase them, said Michael L. Hadley, a partner with Davis & Harman in
Concerns exist among plan sponsors “that, in the unlikely
event that an insurer is insolvent, the fiduciaries of the plan that originally
offered that provider's annuity will be liable for not foreseeing the future,”
Hadley said in his written testimony. But he also said that “there's really no
reason that these concerns should exist.”
The Employee Retirement Income Security Act “requires
prudence, not prescience,” Hadley said. “The law is not and should not be
turning plan fiduciaries into stop-loss guarantors,” he said.
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