PLANADVISER - March/April 2021 - 18

plan design | cover story
commissioner of the state where it is domiciled.
" The good news about this statutory safe harbor is that it
simplifies the process of selecting the provider, " says Bruce
Ashton, Los Angeles-based senior counsel at law firm Faegre
Drinker Biddle & Reath LLP. " It says, 'If you get this list of
information, you have met the terms of the safe harbor, and
you're good to go.' "
Asked how he would explain the upshot to sponsors, he
says, " I would say, 'Now, you're not going to be responsible
if the insurance company gets into financial trouble in the
future and can't pay off on this contract.' I think that will
make it easier for advisers to recommend that a plan client
add a lifetime-income option. "
The new safe harbor " offers a ton more clarity, " says
Tom Roberts, a principal at Groom Law Group, Chartered, in
Washington, D.C. " Under the old safe harbor, a fiduciary was
left to wrestle with how to analyze an annuity provider's
financial capabilities. Under the new safe harbor, as long as
the plan fiduciary receives the written representations from
the provider that are required, then, at that point, the plan
fiduciary is freed of its burden of having to independently
investigate the finances of the insurance company. "
It is important to explain the SECURE Act safe harbor's
parameters to sponsors, Ashton says, because it does not
release fiduciaries from all risk associated with selecting
a retirement-income option. " Something people probably
don't understand about this is that it's a safe harbor for the
selection of the provider, not the selection of the product, "
he says. " So the safe harbor applies only to choosing the
insurance company; it doesn't apply to choosing the product
itself. Plan fiduciaries still have to engage in a thorough
investigation of the products to decide, 'OK, which lifetimeincome
solution do we want to offer to our participants?'
The 2008
Safe Harbor's
Unanswered
Questions
So they need to look closely at things such as the costs and
features of the products. "
Consider Benefits and Costs
Helping plan sponsors get comfortable with the benefits
and costs of these products takes time, sources say. It is a
multistep evolution in thinking. The sponsor must:
* Decide to address decumulation issues. It starts with a
broader, ongoing discussion that advisers should have with
their clients about the needs of employees nearing retirement
age, suggests Barbara Delaney, founder and principal
at StoneStreet Renaissance (SS/RBA), in Pearl River, New
York. " We need to change the dialogue, to be more comprehensive,
and include health care in retirement, a drawdown
strategy; people need to understand their expenses in
retirement, " she says. " It all ties in to, what do people need
when they transition to retirement? I'm bringing it up at
every committee meeting, and I'm telling my clients, 'You
need to look at this more broadly.' "
Plan sponsors have begun to recognize the need to
help employees nearing retirement with their transition,
Delaney says. " I have some very stubborn plan sponsors
who still say, 'It's not my problem.' I tell them, 'It's going to
be your problem soon. We're starting to see people stay on
the job instead of retiring, because they don't know how to
transition to retirement.' "
The issue of adding a retirement-income option relates
to where a particular plan is in the retirement-plan lifecycle,
Daley has found. Decumulation needs typically get
addressed after a plan progresses to the point where most
of its participants are on track to save enough for retirement,
he says. Plans like that are seeing some participants
retire with high-six-figure or low-seven-figure balances, he
THE SAFE HARBOR for selection of a lifetime-income provider, issued by the
Department of Labor (DOL) in 2008, left unanswered some big questions for
plan fiduciaries.
The 2008 safe harbor neglected to clarify what specific financial due-diligence
steps a plan fiduciary needed to take. " The problem I think most plan
sponsors had with it is that it didn't really say what they had to do, " Faegre
Drinker's Bruce Ashton says. " It said they had to engage in a 'thorough' investigation,
but it didn't go on to say, 'Here is specifically what you need to do.' "
The 2008 safe harbor " was vague in spots, and it left open the question of
how deeply a plan fiduciary needed to go to fulfill the fiduciary duties, " says Tom
Roberts of Groom Law Group. Most crucially, the previous safe harbor said that a
plan fiduciary needed to sufficiently gauge a provider's financial ability to fulfill
its contractual obligations-obligations that, by the nature of a lifetime-income
product, last for decades into the future. " It required plan fiduciaries to 'appropriately
consider' and draw conclusions about a provider's long-term financial
capabilities but didn't define specifically how to do that, " he says.
" I think that for a plan fiduciary, the concern with selecting a lifetime-income
product was, for a long time, the 'tail risk' associated with the product, " Roberts
continues. " There was a concern about, 'If I select a provider that appears to be
fully financially stable today, but in 20 or 30 years has financial problems,
might I be accused of breaching my fiduciary responsibility?' " -JW
18 | planadviser.com March-April 2021

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PLANADVISER - March/April 2021

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