The Department of Labor has issued new guidance in a field assistance bulletin to clarify existing safe harbor rules for immediate and deferred annuities in defined contribution plans.
The new guidance comes as the DOL is in the process of considering amendments to safe harbor regulations issued in 2008.
Those safe harbor standards said a plan trustee satisfies their fiduciary obligations under the Employee Retirement Income Security Act if they appropriately consider "information sufficient to assess the ability of the annuity provider to make all future payments under the contract," among other safe harbor provisions relating to ERISA's self-dealing, conflict-of-interest and reasonable fee provisions.
But questions as to a sponsor's ongoing obligation to assess insurance companies' ability to meet future obligations have been raised since the safe harbor was issued in 2008, and consequently encouraged some sponsors to shy away from offering annuity options in plan menus, at a time when the DOL and Department of Treasury have coordinated to encourage to the use of lifetime income options in plan design.
While the new bulletin, issued on the day the White House hosted its Conference on Aging, does not amend the 2008 safe harbor, it does address the "time of selection" clause in the regulation.
A sponsor is required to assess an insurance company's future viability at the time the annuity products are selected for the investment lineup.
That assessment is based on the information available to sponsors at the time of selection of the annuities, "and not based on facts that come to light only with the benefit of hindsight," according to language in the DOL's new field bulletin.
Periodic reviews of the annuity selections are also required under the safe harbor rules, but the guidance is clear that sponsors don't have to engage in the review of a product every time a participant selects the option from an investment menu.
