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Compliance February 27, 2023
IRI to Push for Annuities as Default Retirement Investment Option in ‘23
The retirement insurance industry group is calling for legislation that would do away with a liquidity feature that limits certain annuities in retirement plans.
Reported by Alex Ortolani
The Insured Retirement Institute will be focusing advocacy efforts in 2023 in part on eliminating barriers to the inclusion of guaranteed lifetime income annuities in retirement plans as a qualified default investment alternative.
The IRI revealed its intentions on Monday in a release of its 2023 Federal Retirement Security Blueprint detailing the advocacy group’s federal legislative and regulatory agenda for the remainder of the year. Washington-based IRI marked one of its 28 goals as expanding the use of lifetime income products as default investment options.
The Pension Protection Act allows for the use of annuities as QDIAs. But IRI noted that current Department of Labor regulations inhibit the use of certain investment options that do not meet specific liquidity requirements.
“The regulations essentially mandate that any funds in a QDIA must be available for the participant to transfer or withdraw ‘not less frequently than once within any three-month period,’” the IRI wrote. “However, the liquidity requirement in the current rules effectively prohibits the use of protected, guaranteed lifetime income solutions that have delayed liquidity features, despite the fact that these features allow them to offer higher returns.”
The group called on Congress to enact legislation that would allow plan sponsors to use annuities as a guaranteed return on investments with a delayed liquidity feature for a portion of contributions. A retirement saver could be defaulted into this option without having to make an investment decision.
Get With the Plan
In-plan annuities, while available and of interest to advisers and plan sponsors, have been slow to be used due to various concerns about implementation, according to research and analysis from Cerulli Associates. That hesitation comes despite a boom in the retail space in 2022 that has continued into 2023, according to tracking from LIMRA.
According to the IRI, including such options in plans would back up research showing that “millions of workers and retirees are concerned about their ability to accumulate sufficient savings to provide sustainable income during their retirement years.”
The institute wrote that, “Congress should enact legislation providing that employers offering protected, guaranteed lifetime income solutions as a default distribution option for participants in their defined contribution plans will have satisfied their fiduciary duties under the Employee Retirement Income Security Act … so long as participants are notified of the default annuitization option and have the right to opt-out.”
The move follows a task force the IRI announced on February 21 to evaluate the implantation of annuities through the savings life cycle. That may include “modernizing data across the industry, including but not limited to delivery methods, standardization where required, and solutions to manage data,” the institute wrote in a press release.
5 Pillars
Beyond its guaranteed income push, the firm said it would focus on five key pillars of legislation in 2023, including expanded opportunities for retirement savers, forwarding innovation and education, boosting protections and safeguards for consumers, and maintaining and augmenting the current tax treatment of retirement savings.
In addition to its five pillars, the IRI offered 28 proposals, ranging from re-enrolling employees into workplace retirement plans every three years to allowing caregivers who leave work to make catch-up contributions to retirement accounts when they rejoin the workforce.
The blueprint comes on the heels of Congress enacting two major retirement reform packages in the past three years with the Setting Every Community Up for Retirement Enhancement Act of 2019 and the Secure 2.0 Act of 2022 last year. Both seek to further expand workplace retirement plans through incentives and mandates, and both also expanded the use of annuities in retirement plans.
The IRI said it anticipates significant federal and state regulatory activity in the coming months, including the implementation of multiple modifications resulting from Secure 2.0. The association also expects the U.S. Securities and Exchange Commission to continue to pursue an active regulatory agenda.
At the state level, IRI will continue to advocate for adopting the National Association of Insurance Commissioners’ model regulation that holds insurance professionals to a best-interest standard of conduct when they recommend annuities to their clients. To date, 33 states have adopted this model, and IRI expects that tally to hit 40 or more this year.
“Our changing national demographics mean more consumers will need access to retirement plans and reliable retirement income from the savings those plans generate,” Wayne Chopus, IRI president and CEO, said in a statement. “That means a strong future for our industry and a very busy agenda for IRI.”
