ERISA Council Signals More Work Needed for Retirement Income Products in QDIA

The Department of Labor’s Advisory Council on Employee Welfare and Pension Benefit Plans, also known as the ERISA Advisory Council, on Thursday held the final discussion in this week’s series centered on retirement income products and their place within qualified default investment alternatives.

Members debated the complexities of integrating lifetime income options into retirement plans and the broader implications for plan sponsors and participants amid the changing retirement landscape.

During the discussion, Alice Palmer, the vice president and retirement plan service chief counsel for the Lincoln Financial Group, highlighted key testimony from industry experts, drawing attention to the comparability of retirement income products.

“Whether your money is in a Vanguard fund, or whether your money is in guaranteed income solution, what that translates to in retirement, depending on the product, can be equivalent,” she said.

Palmer raised questions about how liquidation of these products affects retirees’ purchasing power and whether the value preserved in these solutions can match that of a traditional target-date fund. Palmer emphasized the need for further research on how annuity products influence retirees’ ability to maintain their living standards.

Beth Halberstadt, a senior partner in and the U.S. defined contribution investment leader at Aon, echoed Palmer’s concerns, agreeing that there is a significant opportunity for more guidance on retirement and lifetime income options within qualified plans. She stressed that the current regulatory framework, particularly Section 404(c) of ERISA, does not provide detailed guidance on how fiduciaries should assess or select these products.

“When we think about the rules that we have today, 404(c) is pretty high level,” Halberstadt said. “It doesn’t go into telling fiduciaries how to assess, how to pick, how to select.”

However, Halberstadt cautioned the group against letting perfection hinder progress, encouraging incremental steps toward improving available guidance. She also called for a balanced approach that fosters creativity while mitigating litigation risks.

“We know we don’t want to stifle innovation,” she says. “We’re already struggling in the DC space with innovation and litigation and trying to strike that right balance.”

Another key voice, Holly Verdeyen, a partner in and the U.S. defined contribution leader at Mercer, raised questions about the council’s focus. She noted that much of the testimony and discussion centered on the lifetime income component, despite the council’s original mandate to examine QDIAs as a whole.

Verdeyen emphasized the importance of determining how much of the final report should address the current state of QDIAs, suggesting that the conversation may have drifted too far into lifetime income products. Halberstadt agreed, but noted that foundational reports, such as those from Morningstar and Vanguard, could help address the gaps in testimony and provide a more complete picture.

In its future work, the council intends to further evaluate how lifetime income products can be integrated into QDIAs and how these decisions will impact plan sponsors’ fiduciary responsibilities. It will continue to focus on balancing innovation with the need for clear guidance, ensuring that retirees’ financial security is maintained across various product offerings, according to concluding statements from the advisory made Thursday.