DOL sails on from DC annuity safe harbor in deregulatory push 

The Pension Protection Act of 2006 included a provision directing DOL to clarify that Interpretive Bulletin 95-1’s “safest available annuity” standard doesn’t apply to DC plans. The agency released the DC plan annuity selection safe-harbor regulation in 2008 to fulfill that directive. One of the safe harbor’s conditions is the fiduciary’s appropriate consideration of information sufficient to assess the annuity provider’s ability to make all future payments under the contract.

The SECURE Act added a similar — though not identical — statutory safe harbor to ERISA that applies to a DC plan fiduciary’s selection of an insurer for a guaranteed retirement income contract. Although the SECURE Act didn’t repeal the regulatory safe harbor, DOL apparently believes the statutory safe harbor is better, describing it as “more streamlined” and “less costly.” For example, DOL touts fiduciaries’ ability under the statutory safe harbor to rely on the annuity provider’s written representations about its financial capabilities and compliance with state insurance law. The agency says maintaining the regulatory safe harbor may cause plan fiduciaries to believe “there are benefits to using the regulatory safe harbor rather than the statutory safe harbor” or could mislead them into believing no other safe harbor exists.

DOL’s repeal of the regulatory safe harbor wouldn’t affect fiduciaries’ previous reliance on it. The agency also explains in a footnote that it isn’t disavowing the regulatory safe harbor’s principles and won’t challenge fiduciaries who satisfy its conditions following its revocation (a nonenforcement position that wouldn’t apply to private litigants, such as plan participants). 

The agency’s move to repeal the regulation comes on the heels of the ERISA Advisory Council’s exploration of lifetime income in qualified default investment alternative (QDIA) investments last year in which some DC sponsors reported believing both the statutory and regulatory safe harbors “offer insufficient guidance and protection.” While DOL has issued some guidance interpreting the regulatory safe harbor, sponsors indicated that the absence of agency guidance interpreting the statutory safe harbor limits its current utility.