Human Resources
Thought Leadership

Hewitt Testifies at Hearing on Lifetime Income Options for Participants and Beneficiaries in Retirement Plans

2010-10-06

The Departments of Labor and Treasury jointly held a two-day public hearing from September 14-15, 2010 on Lifetime Income Options for Participants and Beneficiaries in Retirement Plans.

Twenty-three witnesses testified on September 14, and 22 witnesses testified on September 15. Hewitt was represented by Dan Campbell, the Defined Contribution Administration Practice Leader.

In her opening statement, Phyllis Borzi, Assistant Secretary of Labor for the DOL's Employee Benefits Security Administration (EBSA) reiterated her position that imposing a mandate on retirement plans to provide annuities as an investment option would be a "last resort" and her main focus would be on providing participants with education regarding their retirement savings strategy, especially in the decumulation phase. Borzi also alluded to the possibility that EBSA may not take immediate action on lifetime income options issues.

Nearly all of the witnesses requested a safe harbor for plan sponsors to deflect fiduciary responsibility should they choose to offer an in-plan annuity option. Exposure to liability for providing in-plan annuities appeared to be the number one concern among the witnesses. Absent legal protections similar to those provided under ERISA Section 404(c), witnesses noted that plan sponsors were reluctant to offer an annuity option or even further education about this option for fear of appearing to endorse annuities over other retirement savings vehicles. Numerous witnesses stressed the need for the agencies to be directly involved with providing participants with education on annuities. Three issues were cited as highly problematic within the annuity context: portability of accounts following termination or separation from employment, spousal protections, and the feasibility of using annuities as a default investment option. Witnesses offered various approaches to address these issues, but ultimately recognized that unless agencies issued legal guidance, implementing in-plan annuity options would be challenging for plan sponsors. Views diverged on the feasibility or usefulness of providing participants with projections of monthly income based on their current retirement savings strategy. Several witnesses cited the challenge of accurately predicting monthly income amounts due to the varying lifespans of participants following retirement.

Hewitt's Dan Campbell stressed many of these same issues in his written testimony, with a focus on: 1) Specific concerns affecting the choice of lifetime income relative to other options, including fee transparency and institutional pricing; and 2) Alternative designs of in-plan and distribution lifetime income options.

The full copy of Dan Campbell's written testimony is linked to below.

Hewitt Testifies at Hearing on Lifetime Income Options for Participants and Beneficiaries