Recently-introduced legislation to increase so-called lifetime income options (annuities) in 401k and similar retirement plans specifically notes that “lowest cost products” are not a requirement as long as other selection criteria are met.
Cost has long been a sticking point in the debate over what constitutes the “best” or most appropriate products to satisfy fiduciary responsibilities.
The latest bill, titled “Increasing Access to a Secure Retirement Act” is co-sponsored by Reps. Tim Walberg, R-Michigan, and Lisa Blunt Rochester, D-Delaware. It says safe harbor is met if the fiduciary engages in:
- an objective, thorough, and analytical search for the purpose of identifying insurers from which to purchase such contracts;
- considers the financial capability of such insurer to satisfy its obligations under the guaranteed retirement income contract; and
- considers the cost (including fees and commissions) of the guaranteed retirement income contract offered by the insurer in relation to the benefits and product features of the contract and administrative services to be provided under such contract.
“Nothing in this subsection shall be construed to require a fiduciary to select the lowest cost contract,” the wording of the bill specifically states. “A fiduciary may consider the value of a contract, including features and benefits of the contract and attributes of the insurer (including, without limitation, the insurer’s financial strength) in conjunction with the cost of the contract.”
Previous attempts by Congress to boost insurance-based guaranteed products in retirement plans include the “Retirement Enhancement and Savings Act,” introduced in 2016.
That bill sought to increase the portability of 401k plans and “the reliability of lifetime income by making it easier for employers to offer annuity contracts.” It aimed to provide legal protection from lawsuits for 401k plan sponsors when offering annuity products from state-supervised insurance companies.
The latter bill was supported by Sen. Orrin Hatch, R-Utah, the longest-serving Republican senator in U.S. history, who recently announced his retirement at the end of the current term.