PLANADVISER - March/April 2022 - 40

compliance consult
David Kaleda
Guaranteed Lifetime Income
Plan fiduciaries have a safe path to offering the products and features
PLAN SPONSORS, since the 2009 financial crisis, have
increasingly recognized the benefits of adding, to defined
contribution retirement plans, lifetime income products
and features, which can help keep participants from
outliving their retirement savings. And in recent years, a
plethora of insured lifetime income products and features
have entered the retirement marketplace.
They include payout options such as annuities
and also often serve as a key component
of a participant's investment portfolio
by inclusion in the plan's qualified default
investment alternative or by otherwise
guaranteeing a portion of the participant's
account balance, a minimum rate of return
on a portion of the account balance, or a
minimum payment of retirement benefits
even if the account is depleted.
Yet, plan sponsors, fiduciaries and their
advisers may have concerns about increased
exposure to fiduciary liability under the
Employee Retirement Income Security Act
by including such products and features in
their 401(k) plan. They also may question
whether they may remove such products
and features from a plan at some point without violating
the Internal Revenue Code.
In passing the Setting Every Community Up for RetireCongress
stated that the purpose of this provision was
... the SECURE
Act effectively
provides a safe
harbor when a
to alleviate key concerns expressed by plan fiduciaries
regarding their fiduciary obligations to select and monitor
insurance company issuers of GRICs. Congress reasoned that
most plan fiduciaries and their advisers will find meeting
the safe harbor's requirements easier than complying with
the DOL's Interpretive Bulletin 95-1.
Additionally, when considering whether
fiduciary selects
a guaranteed
retirement
income
contract ...
ment Enhancement Act of 2019, Congress created some
assurances for plan sponsors, fiduciaries and their advisers
that they may include such products and features in their
plans while still meeting certain fiduciary requirements.
These SECURE Act provisions, in addition to long-standing
fiduciary principles and Department of Labor guidance, plus
IRC provisions and IRS guidance as to lifetime income products
and features, provide paths to compliance.
In selecting lifetime income products and implementing
their features, a plan fiduciary must comply with his fiduciary
duty of prudence under ERISA. Therefore, in the case
of an insured lifetime income product or feature, the fiduciary
must ensure that the insurance company can meet
its obligations now and, possibly, for many years into the
future. In this regard, Section 209 in the SECURE Act effectively
provides a safe harbor when a fiduciary selects a
" guaranteed retirement income contract " on behalf of a DC
plan. The definition of GRIC can be broadly interpreted to
include many lifetime income products and features.
a plan should include lifetime income
options, some plans want assurance that
they may stop providing the benefit or
feature at some point without violating the
IRC. SECURE Act Section 109 addresses this
concern, amending the IRC to provide two
different mechanisms
to address portability
should a plan end its lifetime income
offering. The first mechanism allows for a
direct trustee-to-trustee transfer by a plan
of a lifetime income investment option to
an eligible retirement plan-e.g., another
qualified plan or an individual retirement
account. The second permits a plan to allow
for the distribution of a lifetime income
investment in the form of a qualified plan
distribution annuity contract as defined in the statute. Both
mechanisms apply even if the participant does not terminate
from employment and thus has no distribution event.
While these SECURE Act provisions are helpful, it is also
important to recognize that long-standing authorities interpreting
ERISA and the IRC support the inclusion of lifetime
income products and features in a plan. For example, the
fees and other compensation associated with insured lifetime
income products or features embedded in plan investment
options may be higher than those charged in connection
with other investment options.
Yet, such fees and compensation should not preclude a
plan from making such products available. Rather, the plan
fiduciary should engage in a process whereby it determines
that the compensation and other pertinent fees are reasonable
in light of the product's benefits and the comparable
costs for competitive products. If fiduciaries lack the necessary
expertise to evaluate the fees and other compensation,
they may hire a qualified adviser to help them.
David Kaleda is a principal in the fiduciary responsibility practice
group at Groom Law Group, Chartered, in Washington, D.C.
40 | planadviser.com March-April 2022 Art by Tim Bower
http://www.planadviser.com
PLANADVISER - March/April 2022

Table of Contents for the Digital Edition of PLANADVISER - March/April 2022
