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The Employee Benefits Security Administration (EBSA) of the U.S. Department of Labor (DOL) recently issued an advisory opinion clarifying that employers can offer lifetime income insurance products as default investments in 401(k) plans. The guidance follows an executive order from President Donald Trump directing increased access to so-called "nontraditional" retirement plan assets.
DOL Secretary of Labor Lori Chavez-DeRemer characterized the guidance as a step in the DOL's efforts to allow plan fiduciaries more flexibility in designing retirement investment options for workers.
EBSA's eight-page advisory opinion explains when plan administrators may treat lifetime income investment options as qualified default investment alternatives (QDIAs) in defined-contribution retirement plans subject to the Employee Retirement Income Security Act (ERISA). QDIAs are default investment options for plan participants who don't take affirmative action about where to invest their retirement funds. ERISA fiduciary duties and other federal regulations outline the standards for QDIAs.
EBSA also announced that it intends to issue new rulemaking with potential safe harbors to clarify the fiduciary duties at issue when offering alternative asset investments. In the meantime, rulemaking established one applicable safe harbor under ERISA in 2009, and Congress enacted another via statute in 2019. Each of these annuity selection safe harbors includes relevant considerations for lifetime income investment products. EBSA further pointed to a 2007 QDIA regulation regarding the fiduciary duties associated with offering the products.
Lifetime income investment products ensure that some or all of a retirement plan participant's account balance is paid out over time. By using these products, retirees are guaranteed a specific level of withdrawals even if their account balances are empty.
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