A bipartisan bill introduced in Congress in mid-February would for the first time allow retirement plan sponsors to use annuities as qualified default investment alternatives inside retirement plans.

Rep. Donald Norcross, a New Jersey Democrat, and Rep. Tim Walberg, a Michigan Republican, introduced the legislation, called the Lifetime Income for Employees Act, or “LIFE Act,” for short. It would change U.S. Department of Labor rules to allow plan sponsors to make annuities a default investment for a portion of contributions made by participants who did not otherwise make their own investment selections.

The bill would allow the use of annuities for as much as 50% of plan balances.

Plans have been blocked from using annuities as qualified default investment alternatives (or QDIAs) since 2016 because of DOL liquidity requirements.

As a result, “savers who utilize their plan’s QDIA are invested in vehicles that only build assets and contain no mechanism to convert those assets to guaranteed income during their retirement years,” said Paul J. Richman, chief government and political affairs officer of the Insured Retirement Institute, in a letter to the lawmakers. (The institute is a trade group for the annuities industry.)

The act would amend the current QDIA safe harbor regulations to allow plan sponsors to select annuities that provide a guaranteed return on investment with a delayed liquidity feature, Richman said.

The legislation also requires that savers who are placed into a qualified default alternative with an annuity component are notified of their participation within 30 days of the initial investment and have the option to reallocate their investment without penalty within 180 days.

A number of annuity providers, including TIAA, are supporting the bill, which could lead to billions of dollars’ worth of annuities sold to retirement plan participants through plans’ default investment mechanisms.

Increasingly, retirement plan participants rely on their plans’ default product as their long-term investment strategy, which can be problematic since currently there are no guaranteed income products, said Thasunda Brown Duckett, the chief executive officer of TIAA, in a letter to Norcross and Walberg. TIAA is a Fortune 100 provider of annuities and other retirement products that had $1.3 trillion in assets under management as of March 31, 2021.

“While many participants mistakenly believe the default option provides a guaranteed retirement income, most QDIA products do not,” Brown Duckett wrote. “By amending the QDIA safe harbor, the LIFE Act will encourage more employers to adopt annuities as part of their default offering so that more Americans will be able to transition seamlessly from saving for retirement to benefitting from a guaranteed income stream when they retire.”