A bipartisan bill introduced today would for the first time allow retirement plan sponsors to use annuities as qualified default investment alternatives inside retirement plans.
Reps. Donald Norcross (D-N.J.) and Tim Walberg (R-Mich.) today introduced the LIFE Act, short for the Lifetime Income for Employees Act, which 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 (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,” Paul J. Richman, chief government and political affairs officer of the Insured Retirement Institute (IRI), said in a letter to the lawmakers today. IRI 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 provides provisions to ensure that savers defaulted into a QDIA with an annuity competent are notified of their participation within 30 days of the initial investment and have the option to reallocate their investment penalty-free within 180 days.
A number of annuities providers, including TIAA, are supporting the bill, which would potentially lead to plan sales of potentially billions of dollars worth of annuities 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 is no guaranteed income products, TIAA CEO Thasunda Brown Duckett said in a letter to Norcross and Walberg today. 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. 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” Brown Duckett said.