The Department of Labor has issued guidance for defined contribution plan sponsors, clarifying their fiduciary responsibilities under certain circumstances for the monitoring and reviewing of annuities as benefit distribution options.
“The guidance should encourage more employers to offer lifetime income annuities as a benefit distribution option in their 401(k)-type plans,” said a DOL fact sheet issued Monday in support of a field assistance bulletin, a formal document used to answer questions about regulations. The document referred to regulations issued by the DOL in 2008 describing sponsors' choosing of annuity providers and monitoring the providers and annuity contracts.
The bulletin focused on “clarifying that an employer's fiduciary duty to monitor an insurer's solvency generally ends when the plan no longer offers the annuity as a distribution option — not when the insurer finishes making all promised payments.”
The new guidance is limited to the selection and monitoring of annuity providers for benefit distributions from DC plans, said the field assistance bulletin. This guidance “does not address any issues regarding plan or fiduciary communications to participants regarding annuity contracts held by participants still covered under a plan.”
The DOL acknowledged that plan executives have expressed uncertainty over the scope of their fiduciary duties in choosing providers and monitoring in-plan annuities. As a result, “fewer than one in five defined contribution plans offer annuities, with the share falling sharply over time,” the DOL said.