Should Annuity Products Get a Fiduciary Safe Harbor? Bloink & Byrnes Go Thumb to Thumb

Bloink: I think the limitation on liability doesn't do enough to require plan sponsors to take this investment option extremely seriously. We do need more lifetime income options for defined contribution plan participants, but we also need to make sure that people are getting access to sound investment products that will perform well over time—otherwise we're doing a disservice to these individuals, who are placing their trust in the plan sponsor in delegating that major investment decision.

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Byrnes: The safe harbor specifically requires plan sponsors to engage in thorough analysis when choosing the insurance company that will supply the annuity contracts. This also specifically includes a cost-benefit analysis, and requires the plan sponsor to obtain written representations from the insurance company that they are complying with laws and regulations that apply to insurance companies. That's built-in protection for plan participants.

Bloink: We've lost the DOL fiduciary rule already. Choosing a lifetime income option that will control distributions of plan participants' hard-earned retirement dollars over a period that can span decades is a huge undertaking, and I can't see how we can limit liability by allowing plan sponsors to go down a checklist of requirements that would allow them to be entirely shielded from liability. Too many variables can come into play in these situations.

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Byrnes: This is definitely a compromise solution, but we need to weigh the costs against the potential benefits of encouraging lifetime income options in DC plans. In today's litigious environment, the costs are simply too high for most plan sponsors to take the risk of a future lawsuit. We don't have traditional pensions that are available on a widespread basis anymore.  This is a way to give people the potential for a lifetime paycheck during retirement. I think it's worth the risk.

Bloink:  And I think we need additional protections.  Professor Byrnes seems to agree that the stakes are high here. Eliminating all potential for future fiduciary liability if plan sponsors satisfy these very basic requirements seems extreme. Fiduciary liability is a powerful motivator to make sure that the lifetime income options we're offering are actually the best options for clients.

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Byrnes: Finding the very best option for a large group of plan participants is untenable at this point. This rule does make sure that we're providing good lifetime income options—this is as opposed to absolutely NO lifetime income options. It's a step in the right direction toward ensuring that plan participants have these options.

Bloink: We have to remember that many retirement plan participants are not in the same position as plan sponsors that would allow them to evaluate the contract option and potential consequences of the lifetime income solution that's being presented to them. This is a classic example of why we have fiduciary liability in the first place.  Plan participants have to be able to trust plan sponsors to act in their best interests, and this proposal would essentially shield the plan sponsor from liability in many cases where they fail to act accordingly.

— More Bloink & Byrnes Go Thumb to Thumb:

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• Does DOL's HRA Proposal Go Far Enough?
• Should 2017 Tax Changes Be Permanent?
• Is the Proposed Child Tax Credit Even Needed?
• Is Inflation Indexing of Capital Gains Good?
• Are New USA Plans a Boon to Savers?
• Was It Right to Kill the DOL Fiduciary Rule?
• Is DOL Rule on Health Plans Bad?
• Trump's RMD Rule Change