Compliance March 22, 2021

From Ohio to Virginia, More States Look to Update Annuity Standards

The states’ embrace of the NAIC annuity transaction suitability framework comes as experts are raising broader questions about the durability of the SEC’s Regulation Best Interest, on which the insurance standards are partly based.

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Virginia is the latest state to consider adopting a version of the model annuity transaction suitability framework finalized early last year by the National Association of Insurance Commissioners (NAIC).

Technically, the Virginia State Corporation Commission (SCC) has proposed amending Chapter 45 of Title 14 of the Virginia Administrative Code, specifically by revising the rules set out in the sections labeled “14 VAC 5-45-10” through “14 VAC 5-45-47.”

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These rules establish the standards that an insurance agent or insurer must follow when recommending or selling an annuity to consumers in the state, and the proposed amendments generally align with the enhanced suitability in annuity transactions model regulation approved by the NAIC.

By way of background, the NAIC is the United States’ main standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, Washington, D.C., and five U.S. territories. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer reviews and otherwise coordinate their regulatory oversight.

Supporters of the updated NAIC best interest framework include the Insured Retirement Institute (IRI), which says the revised suitability model is appropriately consistent with the U.S. Securities and Exchange Commission (SEC)’s Regulation Best Interest (Reg BI). In fact, the NAIC model includes language that directly provides a regulatory safe harbor for all insurance producers who are subject to, and actually comply with, equivalent or greater conduct standards, including Reg BI or the Investment Advisers Act. Supporters say this approach helps to avoid duplicative compliance requirements for those producers who already comply with rigorous standards.

In a comment letter on the Virginia proposal, the IRI encourages the state to follow the example of some of its peers and provide a six-month implementation period that is not contained in the NAIC’s model.

“We have encountered significant confusion in other states that have adopted the latest version of the NAIC model with respect to the timeline for completion of the training required thereunder,” the IRI’s letter states. “Based on our extensive involvement in the development of these revisions at the NAIC and the adoption of the revisions in other states, we believe the following accurately represents the NAIC’s intent. First, agents who obtain their license on or after the effective date (i.e., six months after adoption) must complete the required training before selling annuities. And second, agents who are already licensed to sell annuities on the effective date should be given a six-month grace period after the effective date to complete the required training.”

The IRI letter calls for several other technical adjustments which are echoed in comments submitted by the American Council of Life Insurers. Both organizations say they look forward to working with Virginia policymakers on these matters.

In embracing the NAIC framework, Virginia joins a growing list of states that have done the same, including Ohio, Idaho, Iowa, Arkansas, and Arizona. In Idaho, the recent move to embrace the NAIC framework was mandated by a law passed in the state House and signed by the governor. Notably, other states have taken steps to create frameworks that are more restrictive than the NAIC model, including New York.

One unique case has played out in Kentucky, where the Kentucky Insurance Department decided in February to not proceed with the promulgation of a revised suitability model after various stakeholders raised concerns about the removal of “best interest” language in the proposed regulation.

At this point, the Kentucky Insurance Department says it will meet with all interested parties to allow for a robust discussion on the issues and to see how the topic evolves as the NAIC model is adopted in other states. Kentucky had initially proposed a regulation that aligned with the NAIC’s model, but the proposal was later amended to remove the best interest language, a move which the IRI and others protested.

One matter that could potentially complicate the widening implementation and enforcement of the NAIC’s suitability framework is the fact that the Biden administration could choose to modify, update or even rescind Reg BI, though sources say this is far from a given. While this would not entirely derail what the states have done, given that the safe harbors often also cite the Investment Advisers Act or the Department of Labor (DOL) fiduciary standards, the elimination of Reg BI could cause ambiguity in the different state-based conflict of interest rules. The outcomes of various pending lawsuits challenging aspects of the DOL’s fiduciary rule framework could also complicate matters.

What is clear at this juncture is that Biden’s nominee to head the SEC, Gary Gensler, has pledged to make consumer protection a top priority if he is confirmed to the role.

Client Service March 22, 2021

15th Anniversary of RPAY: Ellen Lander

Lander says her practice, Renaissance Benefit Advisors Group, thoroughly enjoys its independence.

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Ellen Lander

Since being named the 2019 PLANSPONSOR Retirement Plan Adviser of the Year, Ellen Lander, a principal at Renaissance Benefit Advisors Group (RBA) in New York City, says her practice has not changed in terms of team size or focus.

“We remain an independent retirement plan advisory practice focused solely on the needs of qualified retirement plan sponsors and their participants,” she says.

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Lander says it was her overwhelming enthusiasm for the business that helped propel the growth of Renaissance Benefit Advisors.

“I started RBA from scratch, coming out of a major retirement plan recordkeeping firm,” she says. “My practice began with a whole lot of conviction on my part—but only one 401(k) client. The practice grew from there, solely through client referrals, all starting with that one client, who remains a client today.”

Lander says that while her service model has not changed, today RBA provides all services to support a client’s plan, including investment, compliance, governance and plan design services.

“I would say that where we are spending most of our time has changed,” she says. “We are spending far less time on investment areas and far more time with compliance, governance, mergers and acquisition [M&A] work and plan design. Likewise, we haven’t changed our relationships with our strategic partners and peers. We continue to love our independence.”

As to how the industry has changed in the past 10 years, Lander says, “Our industry has evolved in step with the evolution of ERISA [the Employee Retirement Income Security Act] and, dare I say it, all of the ERISA litigation that has provided us so many learning moments and areas to re-evaluate with our clients.”

Lander says she is totally optimistic about the future of the retirement plan industry.

“The decisions that retirement plan sponsors make have a huge impact on their employees’ financial futures,” Lander adds. “ERISA is enormously complex. Fiduciary liabilities are real, and every decision a sponsor makes has so many implications. More than ever, plan sponsors need to have expert-level advice and guidance and be provided fully objective viewpoints to allow them to make fully informed, fiduciary-level decisions. That’s our job as advisers, to provide that.”

While many advisers say financial wellness is now playing a larger role in retirement plans, Lander says education has always been important, so she doesn’t think the importance of financial wellness has increased. “That said,” she adds, “I do think that what has changed are the topics that need to be covered. One huge topic is decumulation strategies.”

Since the pandemic hit, Renaissance Benefit Advisors has been having different conversations with clients, Lander says.

“We’re probing a lot of the new provisions with the SECURE [Setting Every Community Up for Retirement Enhancement] Act,” she says. “Do we move forward with the CARES [Coronavirus Aid, Relief and Economic Security] Act loans and distributions? Do we hurt or help participants by adding them? Do we adopt the QBOAD [qualified birth or adoption distributions] provision? Is the new long-term, part-time employee rule going to impact our plans? We are also carefully watching plan metrics such as any drop-offs in contributions or an increase in loans. We are asking ourselves whether we need to offer focused education on any one area. Do we need to consider changing a plan’s design?”

Finally, as to what retirement plan advisers can do to improve the health and prospects of defined contribution (DC) plans and participants, Lander says it is clear: “Make sure plan sponsors understand their fiduciary responsibilities. ERISA is a beautiful body of law and while excruciatingly complex, I see it as simple at its core. It urges us to do the right thing for employees. As advisers, we need to stay at the forefront of the seemingly nonstop changes in laws, recordkeeper capabilities and new products being introduced to make sure that we provide our clients objective and complete information on benefits and their implications and risks, so that they can make fully informed and vetted decisions to protect the plan and their participants.”

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