Measure Offers Retirement Savers Improved Ability to Generate Protected Income Stream
WASHINGTON, D.C. – A bipartisan House bill would remove a barrier to offering certain lifetime income products as default investment choices in retirement plans.
The Lifetime Income for Employees (LIFE) Act (H.R. 3942), introduced recently by Rep. Donald Norcross (D-N.J.) and Rep. Tim Walberg (R-Mich.), 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.
Enacting the legislation is a priority for the Insured Retirement Institute (IRI), which included the measure in its 2023 Retirement Security Blueprint.
QDIAs, created by the Pension Protection Act of 2006, including annuities that provide guaranteed lifetime income, have proven to be an essential tool to enhance retirement security by allowing retirement savers to accumulate assets without making underlying investment selections inside their workplace retirement savings plan.
“Workers and retirees are anxious about their ability to accumulate sufficient savings to provide them with income that will last throughout their retirement years,” said Paul Richman, IRI Chief Government and Political Affairs Officer. “Allowing for higher-yielding lifetime income products with delayed liquidity features to be offered as part of the default, in addition to the existing annuities that are currently available as default investments, would help further address the risk of retirees not having enough income in retirement.”
A recent Gallup poll reported that Americans worry most about having enough money for retirement. More than seven out of ten nonretired adults are at least moderately worried about funding their retirement, including 42% who say they are very worried.
IRI’s consumer research shows significant interest in protected lifetime income solutions, such as annuities, among workers. IRI found that nearly eight in 10 workers would likely allocate a portion of savings to an in-plan annuity with a lifetime income guarantee. Almost 90 percent believe protected lifetime income is important.
The QDIA regulations essentially mandate that any funds in a QDIA must be available for the participant to transfer or withdraw “not less frequently than once within any three-month period.” The bill would amend current QDIA safe harbor regulations to allow a QDIA to include a limited investment in less liquid annuities that can therefore provide a higher return to investors. Plan sponsors would not need to make any changes to their current QDIA but would have the option of adding less liquid, higher-returning annuities as default investment options.
“Current Department of Labor regulations governing QDIAs have created a barrier to using certain investments that do not meet specific liquidity requirements,” Richman said. “The regulations have created an environment where savers who utilize their plan’s QDIA have to use a lower-yielding version of annuities than could otherwise be available.”
In 2016, the Department of Labor issued an information letter stating that a retirement plan can offer an investment with an annuity component consistent with a plan sponsor’s fiduciary duty even if it does not meet the “liquidity and transferability conditions” otherwise outlined in the QDIA regulation. However, the current QDIA safe harbor regulation would not allow such an investment to serve as a QDIA without an amendment to the current regulation.
“This legislation would simply update regulations to reflect innovations in retirement security investment products,” Richman added. “The solution provided by the Lifetime Income for Employees Act will significantly improve the lifetime income products available to help retirement savers produce sustainable income during their retirement years.”
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Contact: Dan Zielinski
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