DOL Withdraws Annuity Safe Harbor Final Rule After Blowback

The Department of Labor withdrew its July 1 rule that would have repealed the safe harbor provided by the Pension Protection Act of 2006 due to “the receipt of significant adverse comments,” the agency announced Monday.

The July 1 final rule would have gone into effect on September 2 if the agency had not received significant blowback before its July 31 deadline. The agency argued that the regulatory safe harbor “became unnecessary” in 2019, when Congress passed the Setting Every Community Up for Retirement Enhancement Act, which introduced a complementary statutory safe harbor under the Employee Retirement Income Security Act Section 404(e), focused specifically on assessing the financial strength of insurers—a requirement originally embedded in the 2008 regulatory guidance on the Pension Protection Act’s provisions.

On July 31, the comment deadline, the Insured Retirement Institute sent a letter to the DOL urging officials to reconsider its decision to rescind the guidance. The IRI stated that removing the safe harbor would have led to fewer lifetime income offerings, since the two protections work in tandem. By having both protections, fiduciaries could follow whichever regulatory framework best suited their offerings, the IRI argued on July 31.

“A statutory safe harbor enacted under the SECURE Act of 2019 primarily addresses the financial viability of insurers, while the regulatory safe harbor encompasses broader fiduciary duties regarding both the provider and the annuity contract itself,” the IRI stated on Monday.

Though rescinding the guidance would have limited the protections, the SECURE Act would still have offered a statutory safe harbor, so some industry insiders did not expect the final rule to slow adoption of annuities.

The initial effort, intended to “streamline” regulatory guidance, is part of a broader effort by the DOL and other agencies. When the safe harbor final rule was announced in July, the Employee Benefits Security Administration had also announced it was removing three interpretive bulletins related to the Employee Retirement Income Security Act, calling them obsolete and unnecessary. The efforts all fall under a late-January executive order that aims to “alleviate unnecessary regulatory burdens.”

“Withdrawing this direct final rule is the right call,” said Emily Micale, director of regulatory affairs at the IRI, in a statement on Monday. “We urge DOL not to revisit this issue and keep this necessary safe harbor for the benefit of retirement savers.”