In an information letter to Christopher Spence, senior director,
Federal Government Relations at TIAA, the Department of Labor (DOL) says
a defined contribution (DC) plan could prudently choose a default
investment for the plan that contains lifetime income elements.
letter was in response to a request regarding the application of the
Employee Retirement Income Security Act (ERISA) to TIAA’s Income for
Life Custom Portfolios (ILCP). The DOL notes that one of the conditions
for qualifying as a qualified default investment alternative (QDIA) is
that any participant or beneficiary on whose behalf assets are invested,
must be able to transfer such assets “in whole or in part” to any other
investment alternative available under the plan with a frequency
consistent with that afforded participants and beneficiaries who elect
to invest in the QDIA, but not less frequently than once within any
three month period. The ILCP’s Annuity Sleeve does not meet this
requirement, so the ILCP would not constitute a QDIA.
the DOL also notes that in the preamble to its QDIA regulations, it says
investments in stable value products or funds may be prudent for some
participants or beneficiaries even though such investments themselves
may not generally constitute QDIAs. “The Department did not intend those
examples to be an exclusive list of investments that could be prudent
default investment alternatives,” the letter states in a footnote.
his letter, Louis J. Campagna, chief, Division of Fiduciary
Interpretations, Office of Regulations and Interpretations at the DOL,
points out that following issuance of the QDIA regulations, the DOL,
along with the Treasury Department and other stakeholders, identified
the need for lifetime income as an important public policy issue and has
supported initiatives that could lead to broader use of lifetime income
options in defined contribution plans as a supplement to and
enhancement of accumulation of retirement savings.
In 2014, Treasury issued guidance
providing that DC plan sponsors can include deferred income annuities
in target-date funds (TDFs) used as a QDIA, even if only offered to
older participants, and the plan would not be considered discriminatory.
In an accompanying letter, the DOL reiterated that to qualify as a
QDIA, participants must be able to transfer assets out of the fund at
In addition, to saying an investment with
lifetime income elements can be a prudent default investment option in
DC plans, even if not a QDIA, the letter offers considerations for
determining whether it is prudent to use this type of investment as a
The letter is here