The Obama Administration delivered two booster shots to the retirement industry as part of Monday’s 2015 White House Conference of Aging, held in Washington and online.
First, President Barack Obama told the conference that he directed the Department of Labor (DOL) to develop a set of rules for states that want to sponsor retirement plans for people who have no access to such plans at work. The rules would likely help states develop such plans.
Second, on the same day, DOL’s Employee Benefits Security Administration (EBSA) issued guidance favorable to offering lifetime income annuities inside of defined contribution (DC) retirement plans.
Although different in focus, the two developments represent significant energizers for retirement planning. They have the potential for positive impact not only on consumers but also on DC plan sponsors, plan providers and annuity professionals and their carriers.
The impact will take a while to see fruition, but now the seeds are planted.
The state plan booster shot
Targeted for publication by year-end, the rules that Obama called for would provide a way to make it easier for states to offer state-sponsored plans retirement plans to workers who have no access to a savings plan at work.
A “handful” of states are already “stepping up to the plate” with such plans, and more than 20 states are thinking of doing the same, the President said.
As previously reported by InsuranceNewsNet, five states have enacted laws calling for development and/or creation of such plans, mostly for the private sector. However, none of the state plans is up and running yet. That’s due to a number of issues related to budgets, need for further study, development time, and so on.
But there is another thorny issue, and it’s one that the President’s new order addresses. This is the “lack of clarity” that some states are wrestling with regarding whether their retirement plan programs would be preempted by the Employee Retirement Income Security Act of 1974 (ERISA), according to the White House.
That’s a technical issue, but an important one, if the state programs encounter push-back due to ERISA.
Enter the booster shot. DOL’s soon-to-be-proposed new rules would clarify “how states can move forward [on state-sponsored plans], including with respect to requirements to automatically enroll employees and for employers to offer coverage,” the White House said in a fact sheet.
This should facilitate state efforts to provide workplace-based retirement saving opportunities, the document said.
Another fact sheet, this one from EBSA, pointed out that there is already a safe harbor regulation in place. This regulation says that payroll-deduction individual retirement accounts in private sector workplaces are not ERISA-regulated employee benefit plans so long as certain conditions are met. But there are “conflicting views” about whether state-sponsored initiatives fit into the safe harbor, EBSA said. In view of that, a new regulation “just for state sponsored programs” can address the question while mitigating the ERISA preemption risk for states, employers, and others involved in state savings initiatives, the agency said.
The federal courts are the ultimate decision-makers about state preemption or nullification, EBSA pointed out. However, “ERISA preemption should not be an insurmountable impediment to the states' good faith efforts to bolster the retirement security of their workers.”
The regulations still must be drafted and undergo comments and corrections, so it is doubtful that the states will get the clarity they are seeking this year. That means existing state-sponsored retirement plan initiatives may go into a holding pattern for a while.
However, the Administration’s direction seems to be toward embracing state programs rather than squelching them in favor of its own program, the myRA announced early last year. For retirement providers and professionals, this could mean it’s “game on” for competition in this market, which is what most in the private sector want to see.
The annuity booster
The annuity booster shot appears in a new Field Assistance Bulletin (No. 2015-02) that EBSA published Monday. This deals with plan sponsor liability for income annuity selection and monitoring in defined contribution (DC) plans.
The guidance clarifies that “an employers' fiduciary duty to monitor an insurer's solvency generally ends when the plan no longer offers the annuity as a distribution option, not when the insurer finishes making all promised payments,” EBSA said.
This “should encourage more employers to offer lifetime income annuities as a benefit distribution option in their 401(k)-type plans,” EBSA concluded.
That last is a statement which annuity professionals will surely digest with measured satisfaction. Plan sponsors and providers have been asking for guidance on the liability issue for a long time, and now they have it.
Even employers who have wanted to offer a lifetime income option inside their 401(k) plans have been leery of doing so, because they did not know the boundaries of their duties here.
Another “smiling point” for annuity professionals is that EBSA explained its motivation for the new bulletin in an annuity-positive way: The guidance is “part of a broader initiative to increase awareness and availability of lifetime income options in defined contribution plans.”
InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at [email protected].
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