Regulatory Updates on Annuities in Retirement Plans: Key Perspectives
During a recent hearing by a House Committee on Education and Workforce subcommittee, several participants proposed regulatory updates to enhance the usability of annuities in retirement plans. The discussion concentrated on strategies benefiting defined contribution (DC) plan members during retirement income drawdown.
Surya Kolluri, the leader of TIAA, suggested that the Department of Labor (DOL) update its regulations concerning qualified default investment alternatives (QDIAs). He advocated for annuities to be included as default investment options. Kolluri also proposed that the DOL develop guidance for fiduciaries, ensuring that they consider annuities while adhering to their responsibilities.
These recommendations, which align with those from the ERISA Advisory Council (EAC) in their December 2024 report, emphasize the need for a structured approach to selecting lifetime income options as QDIAs. The report also suggested a document akin to IB 95-1 to delineate a prudent selection process.
The proposal for default annuities has gained support, notably from the Pension Resource Council (PRC), although entities like AARP express reservations about their suitability as standard options. Kolluri further recommended legislative measures to facilitate managed withdrawals and better educate individuals on longevity risk. He highlighted the importance of savers understanding their potential lifespan to make informed financial decisions.
Additionally, Kolluri backed the Lifetime Income for Employees Act. This proposed legislation would require modifications to the DOL's QDIA rules to incorporate a guaranteed lifetime income option with liquidity features. Wayne Chopus, Insured Retirement Institute's (IRI) President and CEO, noted the benefits of annuities in mitigating longevity and market risks, offering retirees increased financial security.
However, some participants voiced concerns about the universal applicability of lifetime income products. Representative Mark DeSaulnier emphasized that many workers face challenges in saving enough during employment to invest in annuities. He urged Congress to reinforce collective bargaining rights, as these are closely related to retirement security.
Dr. Nari Rhee from the UC Berkeley Labor Center critiqued the system, pointing out its limitations for most savers who lack sufficient funds for meaningful annuity purchases. She mentioned the complexity and lack of transparency in annuity pricing, differentiating them from simpler investment products like target-date funds.
Representative Mark Takano questioned the focus on annuities, considering the median retirement savings of individuals. He suggested that these discussions might overlook broader, more pressing issues facing average savers. The dialogue places emphasis on potential regulatory reforms and legislative actions that could redefine the role of annuities in retirement planning, with implications for fiduciary practices, policy development, and industry operations.