In theory, the promise of guaranteed income in retirement seems like a great idea. The 2006 Pension Protection Act took steps to limit the fiduciary implications of including annuities in defined contribution (DC) plans. But according to Callan’s 2019 DC Trends Survey, few plans offer annuities either as a form of distribution payment (11%) or as an in-plan guarantee (4%). Discomfort around the fiduciary implications of such options consistently ranks as the top reason for the reluctance to add an annuity-type option.

Congress has long heard of this hesitation, and an annuity-selection safe harbor has been a common theme among recently proposed retirement legislation, such as the Family Savings Act and the Retirement Enhancement and Savings Act. While proposals may come and go, a new iteration illustrates the continued importance of an annuity-selection safe harbor to any proposed retirement legislation.

In late February, Reps. Lisa Blunt Rochester, D-Del., and Tim Walberg, R-Mich., proposed legislation in the House to ease the way for annuities within DC plans. The Increasing Access to a Secure Retirement Act (H.R. 1439) would provide a fiduciary safe harbor to the selection of an annuity provider. To qualify for the safe harbor, the fiduciary would need to meet several obligations in the consideration and selection of a provider, including that the cost is reasonable and the insurer is financially capable of satisfying the contract’s obligations. The full text of the proposal is still pending.

Bottom Line: As DC plans have supplanted defined benefit (DB) plans, and participants have taken a greater role in building retirement savings, retirement income has become a key consideration. Plan sponsors should consider the plan objectives and how differing retirement income solutions could support participants.