A retirement plan sponsor's fiduciary duty to monitor an insurer's solvency generally ends when the plan no longer offers an annuity as a distribution option, the Department of Labor said in new guidance.
The guidance clarifies that a defined contribution plan sponsor's fiduciary duty doesn't last all the way to the point at which the insurer finishes making all promised payments, the DOL said in Field Assistance Bulletin 2015-02, released July 13.
The DOL said it issued the guidance because of concerns that “confusion or lack of clarity” on the nature or scope of fiduciary responsibilities to monitor annuity selections might lead plan sponsors to “overestimate or otherwise misunderstand the duration or extent” of those duties and discourage them from offering annuities as a distribution option.
The DOL's annuity selection safe harbor, finalized in 2008 under 29 C.F.R. § 2550.404a-4, requires, among other things, that sponsors consider information sufficient to assess the ability of the annuity provider to make all future payments under the annuity contract, and determine that, at the time of selection, the provider is financially able to make all future payments under the contract.
The safe harbor “in general wasn't helpful” due to its lack of clarity, Kathryn L. Ricard, senior vice president for retirement policy at the ERISA Industry Committee, told Bloomberg BNA. “Any attempts to clarify the guidance we welcome and find helpful.”
The new guidance was released the same day that the White House directed the DOL to issue by the end of the year regulations that would facilitate states' workplace-based retirement initiatives (see related article in this issue).
Annuity Safe Harbor
The guidance is part of the DOL's focus on encouraging sponsors to offer lifetime income options such as annuities in defined contribution plans. Less than 20 percent of sponsors offer annuities, with the share of plans falling over time, the DOL said in a fact sheet accompanying the guidance.
The DOL is also working on proposed rules on lifetime income illustrations, a project in the works since it issued an advance notice of proposed rulemaking in 2013.
Ricard said the DOL also hinted in the guidance that it's continuing to work with the Treasury Department on lifetime income guidance and plan annuities to encourage plan sponsors that are considering offering such options. The agencies “want to cut down any trees in the way” of offering these options, she said.
The DOL guidance comes less than a week after Treasury and Internal Revenue Service action on the lifetime income front. On July 9, they said in Notice 2015-49 that they intend to amend the required minimum distribution rules under tax code Section 401(a)(9) to bar defined benefit plans from replacing various kinds of annuity payments with lump-sum payments, or other accelerated distributions in some circumstances.
Excerpted from a story that ran in Pension & Benefits Daily (07/14/2015).
Design benefit plans and respond quickly and confidently to a range of potential issues with a free trial to the Benefits Practice Resource Center.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)