The Insured Retirement Institute (IRI) is once again carrying water for the annuity industry, this time urging the Department of Labor to retain a regulatory safe harbor that\u2019s already obsolete. The safe harbor in question, rooted in the Pension Protection Act of 2006, was designed to give plan fiduciaries guidance in selecting annuity providers. But the DOL is correct in its proposal to eliminate it, because Congress already provided a more streamlined fiduciary safe harbor in the SECURE Act of 2019.<\/p>\n
The DOL isn\u2019t removing the protections for fiduciaries; it\u2019s removing redundancy. And redundancy in regulation isn\u2019t harmless, it\u2019s confusing, it\u2019s inefficient, and it creates traps for the unwary. Fiduciary law is complicated enough without giving plan sponsors two competing \u201cpaths\u201d for compliance.<\/p>\n
Annuities Don\u2019t Belong in 401(k) Plans<\/strong><\/p>\n IRI frames this as a fight over lifetime income options, but let\u2019s be clear: the real issue is whether the annuity industry gets an easier time pushing its products into 401(k) plans. I\u2019ve never been a fan of annuities in defined contribution plans. Why? Because they bring the same problems they\u2019ve always had:<\/p>\n \u00b7 High costs and opaque fees.<\/strong> Annuities often come loaded with surrender charges, hidden expenses, and compensation structures that enrich the insurer and the salesperson, not the participant.<\/p>\n \u00b7 Complexity.<\/strong> 401(k)s are already complex enough without layering on an insurance contract that few participants will ever fully understand.<\/p>\n \u00b7 Illiquidity.<\/strong> Plan participants expect flexibility from their 401(k) savings. Locking them into annuities undermines one of the key advantages of the DC system.<\/p>\n The idea of guaranteed income in retirement sounds great in theory. In practice, annuities inside 401(k)s create more fiduciary risk, not less. The \u201csafety\u201d that annuities promise is outweighed by the costs and risks of giving participants products that may not fit their needs.<\/p>\n Fiduciaries Don\u2019t Need Two Safe Harbors<\/strong><\/p>\n IRI argues that eliminating the regulatory safe harbor will disrupt fiduciary practices. That\u2019s nonsense. Fiduciaries still have the statutory safe harbor from the SECURE Act, which is clearer and directly tied to ERISA. The DOL is doing plan sponsors a favor by streamlining the rules.<\/p>\n The annuity lobby\u2019s real concern isn\u2019t about fiduciaries\u2014it\u2019s about sales. The more annuities are framed as \u201csafe\u201d for plans, the easier it is for insurers to pressure sponsors into adding them. That\u2019s not about retirement security; that\u2019s about distribution channels and profit margins.<\/p>\n The Bottom Line<\/strong><\/p>\n The DOL is right. Fiduciary rules should be streamlined, not cluttered with duplicative, outdated provisions. The retirement plan marketplace doesn\u2019t need more excuses to wedge annuities into 401(k) plans. Participants are better served with transparency, diversification, and liquidity\u2014things annuities rarely deliver. Plan sponsors should resist the pressure. Just because the annuity industry wants a broader playground doesn\u2019t mean you have to give them access to your participants\u2019 retirement savings.<\/p>\n <\/span><\/p>","protected":false},"excerpt":{"rendered":" The Insured Retirement Institute (IRI) is once again carrying water for the annuity industry, this time urging the Department of Labor to retain a regulatory safe harbor that\u2019s already obsolete. The safe harbor in question, rooted in the Pension Protection … Continue reading