PLANSPONSOR - December 2017/January 2018 - 12

Upfront
In-Plan
Lifetime
Income: DOL
Approves
IN 2014, the U.S. Department of the
Treasury and the Internal Revenue Service
(IRS) published Notice 2014-66, providing
that plan sponsors may include deferred
income annuities within target-date funds
(TDFs) used as the qualified default investment
alternative (QDIA) in a manner that
complies with plan qualification rules.
The guidance made clear that plans have
the option to offer TDFs that include such
annuity contracts either as a default or as
a participant-elected investment. In an
accompanying letter, the Department of
Labor (DOL) separately affirmed that TDFs
serving as default investment alternatives
may include annuities among their underlying
fixed-income investments without
running afoul of Employee Retirement
Income Security Act (ERISA) fiduciary
safe harbor standards.
Important to note, however, is that
this guidance was referring to annuities
contained within professionally managed
target-date funds that have daily trading
liquidity. The IRS notice and DOL letter did
not represent a blanket approval of annuities
as QDIAs but indicated that investment
portfolios built exclusively around
annuities, while appropriate for defined
contribution (DC) plans, are not a good fit
in the QDIA slot for default investors.
This position is further evidenced in
a more recent information letter, which
the DOL sent, responding to the request
of Christopher Spence, senior director,
federal government relations at TIAA.
In this letter, the DOL rejected a TIAA
product that included lifetime income
provisions and was seeking preapproval
as a QDIA. Income for Life Custom
Portfolios (ILCP) complied with ERISA.
In the letter, the DOL reminded fund
manufacturers that one of the conditions
for an option to qualify as a default investment
alternative is that any participant or
beneficiary who is defaulted into it must
be able to transfer the assets. The ILCP's
annuity sleeve fails to meet this requirement,
so it cannot constitute a QDIA.
In his rejection letter to TIAA,
Louis Campagna, chief of the Division
of Fiduciary Interpretations, Office of
Regulations and Interpretations at the
DOL, further pointed out that the DOL,
along with the Treasury Department and
other stakeholders, feels there is a pressing
need for greater use of lifetime income and
this is an important public policy issue.
But Drew Carrington, head of institutional
defined contribution at Franklin
Templeton Institutional, speaking broadly,
says that sponsors should feel encouraged
to provide opportunities for lifetime
income planning within their plan
12 PLANSPONSOR.com December 2017-January 2018 Art by Julie Benbassat
offering.
" When I talk about retirement
income, I usually suggest that we need to
step back from talking about the notion
that any single industry solution or regulatory/legislative
change will be a silver
bullet when it comes to controlling decumulation, "
Carrington says. " Addressing
lifetime income in the qualified plan
context is about building out a tool kit
and building out a series of solutions that
will actually help your employees as they
structure and spend down their retirement
assets, " he observes.
Putting this together, Carrington
draws a few conclusions: " Yes, there
probably are regulations or legislative
approaches that could make small tweaks
that would help plan sponsors feel more
comfortable here, but even more important
is for plan sponsors to step back and
understand that decumulation will never
be as simple as we have made accumulation,
through TDFs. If they provide the
http://www.PLANSPONSOR.com
PLANSPONSOR - December 2017/January 2018

Table of Contents for the Digital Edition of PLANSPONSOR - December 2017/January 2018
