Industry Groups Endorse In-Plan Annuity Guidance

October 27, 2014 ( – Recent guidance from the Internal Revenue Service and the Department of the Treasury on in-plan annuity use has received a warm response from some in the retirement plan industry.

Treasury Department and Internal Revenue Service (IRS) guidance published earlier in October seeks to expand the use of income annuities in 401(k) plans. The Department of Labor (DOL) also threw its hat into the game via an explanatory letter, confirming that target-date funds (TDFs) that include annuities among their underlying fixed-income investments satisfy qualified default investment alternative (QDIA) rules.

The flurry of regulatory activity around in-plan annuity use has received positive marks from a number of industry advocacy groups—most of which seem to agree that it’s important to find ways to expand the use of annuities in defined contribution (DC) plans. For example, calling the guidance an “important step to promote retirement security,” the Institutional Retirement Income Council (IRIC) says it fully endorses the move by Treasury and the IRS to bring more certainty to the process of folding annuities into qualified retirement plans.

“The Institutional Retirement Income Council is pleased with the additional guidance that the Internal Revenue Service and Department of Labor have issued on retirement income strategies in qualified plans,” notes IRIC President William Charyk. “[The guidance] can provide significant comfort to plan sponsors who would like to offer a deferred annuity feature as part of their target-date fund lineup.”

Pointing specifically to the DOL’s information letter, Charyk says that plan sponsors have received critical insights on including deferred annuities as part of their plan’s QDIA without triggering fiduciary liability problems. He suggests the new “annuity selection safe harbor” should provide significant comfort to plan sponsors who have worried about the fiduciary implications of including in-plan lifetime income annuities.

“IRIC appreciates both agencies’ attention to the practical concerns of plan sponsors and looks forward to the release of continued practical guidance from the government to assist the aging population in addressing their retirement needs,” Charyk adds.

The Treasury and IRS guidance was published as Notice 2014-66 and provides that plan sponsors can include deferred income annuities in TDFs used as a QDIA in a manner that complies with key plan qualification rules. Notice 2014-66, in turn, supplements final rules issued this summer for including longevity annuities in a qualified retirement plan account—making it clear that plan fiduciaries have the option to offer TDFs that include such annuity contracts either as a default or as a participant-elected investment.

Another industry advocacy group also weighed in positively on the new guidance. In its own response letter, the Insured Retirement Institute (IRI) says it is enthusiastic that “Treasury continues to support lifetime income retirement plans.”

IRI President and CEO Cathy Weatherford says the guidance “demonstrates the Treasury Department’s commitment to, and ongoing support for, making lifetime income more accessible in workplace retirement plans.”

“By continuing to break down access barriers and providing plan sponsors with this clear guidance, the Treasury Department is acknowledging the important part annuities have in helping Americans attain financial security in retirement,” Weatherford adds. “On behalf of our membership and all those who seek to enhance retirement security in America, we commend Deputy Assistant Secretary Mark Iwry, the Treasury Department and the Administration for their efforts to promote access to lifetime income, and we look forward to their continued partnership as we seek to ensure that all Americans can achieve a financially secure and dignified retirement.”

IRI says it has provided significant input to and has been heeded by the Treasury Department and the Obama Administration since it announced a broad initiative to promote access to lifetime income in retirement plans.