Treasury and Labor departments angling for 'automatic annuities' in 401(k) plans

The Department of the Treasury and the Department of Labor will soon be taking steps to make it easier for companies to offer “automatic annuities” in 401(k) plans, Treasury senior adviser Mark Iwry said today. Federal officials are looking at ways “to make it much more possible, feasible and practical for lifetime income to return to the scene,” Mr. Iwry said at a conference this morning in Washington, which was sponsored by the American Council of Life Insurers. “The 401(k) defined-contribution space seems to be a particularly propitious place to do that,” he added while addressing attendees at the Guaranteeing Savings to Last a Lifetime conference. As InvestmentNews first reported in May, Mr. Iwry — a former senior fellow at The Brookings Institution — has been examining different options for workers to have access to annuities in their employer-sponsored retirement plans. The Treasury Department is now in the process of issuing guidance for rules that would apply to annuities offered within 401(k) plans, he said. Specifically, Mr. Iwry noted, Treasury officials are focusing on guidelines surrounding the solvency of insurers that offer annuities on 401(k) platforms, as well as the costs and portability of these lifetime-income vehicles when offered to plan participants. “In order to make the informed public and opinion leaders comfortable with the idea of lifetime income in [defined-contribution] plans, we’ll … have to make sure that competition and market forces are bringing the costs into a reasonable zone,” he said. While many insurance industry officials have called for reducing liabilities on employers who offer annuities as part of 401(k) plans, it will be difficult for the government to lessen an employer’s fiduciary responsibility in making prudent selections of annuity carriers, Assistant Labor Secretary Phyllis Borzi stated at the conference. “It seems very difficult for me to think about how one could construct a safe harbor that would remove the basic duty under [the Employee Retirement Income Security Act of 1974] to prudently select and monitor the annuity provider without simply abrogating that responsibility and giving it to the participant,” she said.