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GAO to DOL: Do More to Encourage Lifetime Income Options

The Department of Labor (DOL) could do a better job of encouraging lifetime income options, the Government Accountability Office (GAO) says in a new report. The report, issued Sept. 8, is aimed at plan sponsors, but service providers may find it instructive since it makes recommendations on how the DOL could better facilitate plan sponsors seeking particular services and making revenue streams available to participants.

The GAO’s criticism of the DOL includes the following:

  • While the DOL provides limited liability relief to plan sponsors who provide participants at least three diversified investment options, it does not do so for plan sponsors that offer a mix of lifetime income options.

  • The DOL provides guidance on selecting service providers, but does not encourage plan sponsors to seek choices from their service providers — which may prevent plans from being able to offer participants appropriate annuity options.

  • DOL’s guidance on default lifetime income is focused on a particular annuity type used only by a few plans.

The GAO recommends that the DOL help encourage plan sponsors to offer lifetime income options in the following ways:

  • clarify the safe harbor from liability for selecting an annuity provider — by providing sufficiently detailed criteria that would better enable plan sponsors to comply with the safe harbor requirements related to assessing a provider’s long-term solvency; and

  • consider providing legal relief for plan fiduciaries offering an appropriate mix of annuity and withdrawal options, upon adequately informing participants about the options, before participants choose to direct their investments into them.

It also suggests that the DOL help fiduciaries, as they consider how the account balances of their participants will translate into financial security in retirement, by modifying its Meeting Your Fiduciary Responsibilities publication, or by issuing new guidance to encourage plan sponsors to:

  • use a record keeper that includes annuities from multiple providers on their record keeping platform;

  • offer participants the option to partially annuitize their account balance by allowing them the ability to purchase the most appropriate amount of guaranteed lifetime income;

  • consider whether a contract with a service provider ensures future service provider changes do not cause participants to lose the value of their lifetime income guarantees;

  • include participant access to advice on the plan’s lifetime income options from an expert in retirement income strategies; and

  • consider providing required minimum distribution (RMD)-based default income plan distributions as a default stream of lifetime income based on the RMD methodology beginning, unless they opt out, when retirement-age participants separate from employment, rather than after age 70½.