Compliance December 7, 2009

DoL Discusses Lifetime Annuity Income Project

The U.S. Department of Labor (DoL) said it is investigating how it can best encourage the use of lifetime annuities or other similar instruments.

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In a written summary of planned regulations released today, the DoL suggested the lifetime retirement income stream might ultimately become a consideration in judging the behavior of fiduciaries under the Employee Retirement Income Security Act (ERISA).

“These initiatives are intended to assure retirement security for workers in all jobs regardless of income level by ensuring that financial advisers and similar persons are required to meet ERISA’s strict standards of fiduciary responsibility and helping to ensure that participants and beneficiaries have the benefit of their plan savings throughout retirement,” the DoL document said.

Also today, DoL Secretary Hilda L. Solis kicked off a three-day series of live Web chats featuring department officials discussing the planned regulations in a variety of regulatory areas including the Employee Benefits Security Administration (EBSA), which oversees retirement plans and other workplace benefit programs. EBSA chief Phyllis Borzi, an assistant secretary, is scheduled for a similar Web session December 9 at 10 a.m.

“We’re looking at whether people might not be able to get their money in a monthly check (in a stream) that will last their lifetime so they won’t have to worry about it,” Borzi said in a brief video statement about the annuity project. “We’re trying to get all of the interested parties talking to each other and to us to help craft a rule that will be beneficial for everyone.”  

The annuity project was at the suggestion of the department’s ERISA Advisory Council and others, and action on the project is expected in January, the DoL said.

Investment Advice

The agency also addressed reformulating a new investment advice rule. DoL recently delayed and then withdrew a Bush Administration-era rule (see “EBSA Pulls Back Controversial Advice Mandate” and “Investment Advice Regs: Interview with Bradford Campbell”)

In her Web chat today, Solis said the agency was reacting to concerns raised by members of the public (see “Investment Advice Regs: Interview with NAPFA”). “As you may know, a number of concerns were raised regarding the investment advice regulation published by the prior administration,” Solis wrote to one questioner. “In an effort to address these concerns, we decided the best course of action is to take a fresh look and publish a new proposal more closely following the statutory provision enacted by the Congress. We hope to have this proposal published in the very near future.”


Deals & People December 7, 2009

Fee Probe Leads Alabama to Change 457 Providers

Alabama is switching to a new 457 deferred compensation plan provider amid concerns about the previous provider and its relationship with the Alabama State Employees Association (ASEA).

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The Montgomery Advertiser reported that as of December 14, the state personnel board will switch the plan from Nationwide Financial Services Corp. to Great-West Retirement Services. Nationwide has been the provider for the $380-million plan for 30 years.

Last year, the Alabama Securities Commission reported that its probe into “endorsement fee” payments by Nationwide to the ASEA and Public Employees Benefits Corporation (PEBCO), the union’s for-profit subsidiary, found the payments began in 2001 and reduced the amount of interest paid on the fixed option of the plan by 20 basis points (see “Ala. Attorney General Takes Over 457 Plan Fee Probe”).

“The funds paid to ASEA/PEBCO do not appear to be justified, and are in fact mostly profits to the association. It is also certain that it is not disclosed to state employees who participate in the plan that funds they believe are going into a retirement account are being used to subsidize the ASEA,” the report said.

The fees totaled more than $11 million, according to the news report. State Personnel Director Jackie Graham said the switch will be advantageous to employees, providing increased transparency, more stability, and a better fixed rate of return option.

Several state employees have sued Nationwide and ASEA, claiming the plan hurt state workers and money should be returned to the plan’s participants. However, ASEA, which requested but never received information on fees, analysis, and comparisons of the proposed plans to Nationwide, is contending in court that the personnel board interfered with its relationship with Nationwide.

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