A Fiduciary Roadmap for In-Plan Lifetime Income

The analysis, “Guaranteed Lifetime Withdrawal Benefits: Fiduciary Considerations for Plan Sponsors,” was developed by Robert Eccles, Gregory Jacob and Wayne Jacobsen, all of the law firm O’Melveny and Myers LLP. It outlines an approach that can be used to fulfill plan fiduciary obligations to act in a prudent manner, the attorneys say.

IRIC, a nonprofit think tank supporting the retirement income planning community, helped to underwrite the research effort from Eccles, Jacob and Jacobsen—three lawyers specializing in the Employee Retirement Income Security Act (ERISA).

“Despite workers’ growing desire for guaranteed retirement income, especially in light of the continuing shift from traditional pension plans to defined contribution plans, many employers have been reluctant to include retirement income options such as guaranteed lifetime withdrawal benefits products (GLWBs) in their retirement plans,” says William Charyk, president of IRIC, based in Iselin, New Jersey.

He adds, “The employers’ hesitation lies primarily with their misconceptions concerning perceived fiduciary responsibility and liability issues with these options. The attorneys, however, offer a new approach that we believe will help plan sponsors get through the many challenges of offering a retirement income option.”

The authors of the analysis demonstrate that fiduciary standards applicable to offering a GLWB option in an employer-sponsored retirement plan are “no different than the standards applied to fiduciaries relative to the selections of any other investment or retirement income option.” They also emphasize that the decision to include the category of a retirement income option in a retirement plan investment menu should be made at the settlor level, rather than the fiduciary level.

The analysis offers what Charyk terms as a “new fiduciary roadmap” to supplement existing guidance that fiduciaries can use when choosing an appropriate GLWB option. This includes how to:

• Account for portability concerns;
• Evaluate GLWB fees;
• Identify an appropriate GLWB provider;
• Evaluate a provider’s ability to make future payments;
• Periodically monitor providers; and
• Educate plan participants.

Charyk believes that this approach will ultimately lead more employers to start looking at retirement income solutions and to feel substantially more comfortable with their ability to satisfy the relevant legal and fiduciary duties. He adds, “The authors’ roadmap of existing regulatory guidance, used in conjunction with other available guidance, will provide plan fiduciaries with confidence to construct a prudent process, consistent with their legal obligations, for evaluating, selecting, and administering GLWBs.”

A copy of the analysis, which appeared in the summer 2014 issue of the Benefits Law Journal and was financed in part by IRIC, can be found here.