Compliance September 11, 2007

DoL Releases Guidance About Annuity Provider Selection

The U.S. Department of Labor (DoL) on Tuesday issued two rules under the Pension Protection Act of 2006 (PPA) relating to choosing an annuity provider for distributions from DB and DC plans.
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A DoL news release said the agency had issued:

  • an interim final rule amending Interpretative Bulletin 95-1to limit the bulletin’s application to the selection of annuity providers for defined benefit plan distributions from defined benefit plans.
  • a proposed rule to provide guidance, in the form of a safe harbor, for annuity provider selection fiduciaries for benefit distributions from individual account plans, such as 401(k)s.

The DoL said, under the proposed safe harbor, fiduciaries must:

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  • Conduct an objective, thorough and analytical search to identify and select providers.
  • Consider the need to engage an expert to assist in its evaluation of providers.
  • Appropriately conclude that the annuity provider would be financially able to make all future payments under the contract, and the cost of the contract is reasonable in relation to the benefits and services to be provided under the contract.

According to the DoL, the PPA required the agency to issue regulations clarifying that the selection of an annuity contract as an optional distribution from an individual account plan is not subject to the “safest available’ standard under Interpretive Bulletin 95-1, but is subject to all otherwise applicable fiduciary standards.

The interim final and proposed rules are to be published in the September 12, 2007 edition of the Federal Register. Public comments should be submitted electronically to the U.S. Department of Labor’s Employee Benefits Security Administration at e-ORI@dol.gov or through the federal e-rulemaking portal at www.regulations.gov.

Compliance September 11, 2007

SEC Approves FINRA Rule for Deferred Variable Annuity Sales

The Securities and Exchange Commission (SEC) has approved a new Financial Industry Regulatory Authority (FINRA) rule governing broker-dealer sales practices with respect to purchases and exchanges of deferred variable annuities.
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The SEC said the rule, approved on September 7, has four primary components:

  • It imposes a suitability obligation tailored to the characteristics of deferred variable annuities.
  • It contains standards for principal review and requires principals to review transactions before the customer’s application is forwarded to the issuing insurance company for processing.
  • It requires members to establish and maintain specific written supervisory procedures reasonably designed to achieve compliance with the standards set forth in the proposed rule, and
  • It requires members to develop and document specific training policies or programs designed to ensure compliance with the requirements of the rule and salespersons’ understanding of the material features of deferred variable annuities.

Additionally, the SEC issued an order exempting FINRA members from becoming fully subject to Exchange Act Rule 15c3-3 and being required to maintain higher levels of net capital in accordance with Rule 15c3-1 while holding customer funds for no more than seven business days to complete the required principal review under the new FINRA rule.

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More information is available through the SEC press release.

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