Nicholas Zaiko, CIMA
SECURE Act Allows for Annuities in 401(k) Plans
Section 204 of the SECURE Act allows for in-plan annuities. The Act created a “Fiduciary Safe Harbor Provision for the Selection of Lifetime Income Providers” inside of ERISA qualified 401(k) plans. This provision lessens the fiduciary liability when selecting an insurance company to provide annuities as investment options inside of the 401(k) plan.
The Act simplifies the due diligence process for plan fiduciaries to include annuities as an option within a 401(k) plan. The fiduciary needs to demonstrate its prudent review to receive safe harbor. The fiduciary must complete the following:
Review the insurance company’s financial condition and its ability to meet its financial obligations
Consider the costs of the annuity contracts
Document its conclusion that the insurer is financially capable to meet its obligations at the time it is selected
Must obtain written representation from the insurer that it is licensed to offer the contracts and has not had their license revoked or suspended for the last 7 years
Confirmed that the insurer has filed appropriate documents with the state regulator
The insurer maintains the state-mandated minimums
The insurer is not under a supervisory operating structure
The insurer undergoes a financial assessment by the insurance commissioner at least once every five years.
The annuity contract should have the insurance company agree to notify the fiduciary of any material changes
Lifetime Income Investment Disclosure
Once an annuity or lifetime income investment is added to a plan then the plan sponsor must develop a disclosure with the recordkeeper and the recordkeeper would distribute it to plan participants annually.