Lifetime Income for Employees Act Would Make It Easier to Use Annuities as QDIAs
The re-introduced House bill would permit annuities as 401(k) default, with a limit of 50% of retirement contributions.
Representatives Donald Norcross, D-New Jersey, and Tim Walberg, R-Michigan, re-introduced the Lifetime Income for Employees Act, a bill which would make it easier for annuities to be used as the default investment in 401(k) plans, on Friday.
In order to use an annuity as a default investment option, a plan sponsor must provide to participants notices regarding the nature of the annuity and give them 180 days to divest from the annuity without penalty, according to the bill re-introduced in the House on Friday.
Further, if a participant is defaulted into the annuity, no more than 50% of their contributions can be put into it. This is to ensure participants’ savings are invested in a diversified portfolio, including other funds that will tend to be more liquid.
Norcross and Walberg proposed a similar bill in 2020 and reintroduced it again in 2022 to widespread industry support, but the legislation did not make it out of committee.
Norcross’ office provided an emailed statement: “To ensure that QDIAs continue to contain a mix of asset classes, which Congress required in 2006, the bill would provide that no more than 50 percent of the investment could be allocated to the annuity fixed income component. For younger employees the annuity would likely be much less than 50 percent. The remaining mix of assets would continue to consist of mutual funds, collective trusts, or other securities or pooled funds. Ultimately, the law would rely upon the fiduciary obligation of the plan administrator (employer) to make a prudent selection on what product to default an employee into based upon age and other factors.”
The Insured Retirement Institute endorsed the legislation in an emailed statement and expressed regret that the Department of Labor has not updated its regulations to “reflect innovation in retirement security products.” Specifically, the DOL requires a QDIA to be liquid enough that funds can be withdrawn at least once every three months.
The IRI noted that the bill “would allow retirement plan sponsors to use lifetime income solutions that have delayed liquidity features and thus can provide better returns as qualified default investment alternatives (QDIA) for a portion of contributions made by participants who have not made investment selections.”
The Teachers’ Insurance and Annuity Association of America, which has long provided retirement income options in not-for-profit 403(b) plans and has more recently started offering them in private plans, also endorsed the legislation. Chris Spence, head of federal government relations at TIAA, clarified that, currently, “annuities are fully allowed in QDIAs and are fully allowed in 401(k) plans.” The legislation “would simply provide some relief from the requirement that all QDIA assets be available for withdrawal ‘not less frequently than once within any three-month period.’”
The bill has been referred to the House Committee on Education and the Workforce, the same committee to which it was referred in February 2022 and in which it ultimately languished.