Retirement Industry Rallies Around LIFE Act

The bill would amend the DOL’s current default investment safe harbor regulations to allow, but not require, a retirement plan’s default investment to include a limited investment in a non-liquid annuity component that provides a guaranteed return on investment.

On Tuesday, U.S. Representatives Donald Norcross, D-New Jersey, and Tim Walberg, R-Michigan, both members of the House Committee on Education and Labor, announced the reintroduction of the Lifetime Income For Employees Act, known as the LIFE Act for short.

A day after the bill’s reintroduction, financial services companies and retirement plan industry advocacy groups are rallying behind the legislation, calling on the House and Senate to debate and pass it as expeditiously as possible. They say the bill is a logical next step that builds on the successes of the Setting Every Community Up for Retirement Enhancement Act, affectionally known as the SECURE Act among industry professionals and their clients.

The two lawmakers say the legislation would allow annuities to be a default investment in an employer-provided 401(k), with the stated goal of supporting workers as they seek to build a steady, guaranteed income stream during retirement. Specifically, the LIFE Act addresses certain requirements in the qualified default investment alternative regulatory safe harbor that prevent some employers from being able to benefit from the safe harbor if they include annuities as part of their retirement plan’s default investment.

Paul Richman, the Insured Retirement Institute’s chief government and political affairs officer, agrees that the bill would help address the insecurity and anxiety that workers and retirees across America are feeling about their ability to accumulate sufficient savings to provide them with income that will last throughout their retirement years.

As evidence, he points to the IRI’s consumer research, which shows significant interest in protected lifetime income solutions, such as annuities, among U.S. workers. In one survey, he says, the IRI found that nearly eight in 10 workers would likely allocate a portion of savings to an in-plan annuity with a lifetime income guarantee.

“Current Department of Labor regulations governing QDIAs have created a barrier to using certain investments—including protected lifetime income solutions like annuities—that do not meet specific liquidity requirements,” Richman says. “The regulations have created an environment where savers who utilize their plan’s QDIA only invest in vehicles that build assets and contain no mechanism to convert those assets into guaranteed income during their retirement years.”

Scott Brooks, the chief operating officer of a firm called RealBlocks, also shared positive comments about the legislation. RealBlocks is a fintech platform that enables access to and liquidity for alternative investments through blockchain-based technology.

“Congress and the DOL are showing progress on making the large differences between defined benefit and defined contribution plans more fair with this move,” he says. “[We] applaud the use of annuity-like contracts and structures to solve for the distribution phase of DC plans. DB plans have always had this feature.”

Brooks says the DOL appears to be recognizing that “illiquid” investment contracts, such as annuities, will hopefully result in further progress toward the inclusion of real estate and alternative investments as part of the solution for DC plans. He says the proposal would make DC plans more comparable to DB plans, which have long benefited from both types of alternative investments, as well as guaranteed annuity payouts.

Thasunda Brown Duckett, CEO of TIAA, has also expressed her organization’s support for the LIFE Act. In an open letter published to recognize the reintroduction of the LIFE Act, she says annuities are vital to retirement security because they are the only products that can provide individuals with guaranteed returns and a guaranteed stream of income in retirement.

“Increasingly, retirement plan participants rely on their plan’s default product as their long-term investment strategy,” Brown Duckett says. “While many participants mistakenly believe the default option provides a guaranteed retirement income, most QDIA products do not. By amending the QDIA safe harbor, the LIFE Act will encourage more employers to adopt annuities as part of their default offering so that more Americans will be able to transition seamlessly from saving for retirement to benefiting from a guaranteed income stream when they retire.”

One industry professional who is marginally more skeptical of the LIFE Act wrote to PLANADVISER to make the point that, while it is a step in the right direction in order to solve the “decumulation challenge,” it is in reality a small step.  

“The lifetime income providers are not going to be in this business to lose money,” he notes. “They will necessarily have to price lifetime income solutions to avoid that, and if the government forces them to do otherwise, they’ll have no choice but to exit the business. If Congress wants to motivate lifetime income plans, they should ensure that plans whose primary purpose is to provide lifetime income, i.e. DB pension plans, are easy to start and to maintain.”