DOL FAB on Plan Sponsor Monitoring Duties for Annuity Products

Today, the Department of Labor released FAB 2015-02, which provides clarification (for enforcement purposes) of plan sponsors’ fiduciary obligations concerning annuity product selection for defined contribution plans.  The purpose of the FAB is to provide additional clarity to plan fiduciaries with respect to Department of Labor enforcement claims relating to the selection and monitoring an annuity product.

Highlights of FAB 2015-02 include the following statements:

  • A fiduciary’s selection and monitoring of an annuity provider is judged based on the information available at the time of selection, and at each periodic review, and not in light of subsequent events.
  • The periodic review requirement in the Annuity Safe Harbor does not mean that a fiduciary must review the prudence of retaining an annuity provider each time a participant or beneficiary elects an annuity from the provider as a distribution option.  The frequency of periodic reviews to comply with the Safe Harbor rule is based on facts and circumstances.
  • The Department of Labor and the Treasury Department are engaged in a joint initiative to encourage the prudent consideration, offering and use of lifetime alternatives, including annuities in retirement plans.
  • Actions by participants and beneficiaries against plan fiduciaries under ERISA for breach of duty in connection with the purchase of annuities are subject to the applicable statute of limitations contained in ERISA section 413.  Absent fraud or concealment, the plaintiff(s) must base his or her claims on actions or omissions that occurred with 6 years preceding the lawsuit.

In addition, at the White House Conference on Aging, President Obama today announced efforts on the federal level to increase state-based initiatives to encourage  employer-sponsored retirement plans to their workers.  The excerpt from the President’s remarks are as follows:

Facilitating State Efforts to Provide Workplace-based Retirement Saving Opportunities: About a third of the workforce lacks access to a workplace retirement plan.  That’s why, in every budget since taking office, the President has put forth proposals to provide access for 30 million Americans to workplace-based retirement savings by requiring employers not currently offering a retirement plan to automatically enroll their workers in an IRA.  But in the absence of Congressional action, the states are leading the charge.  Similar proposals have been passed by a few states and are under consideration in over 20 others.  Other states are considering an approach that would encourage employers to create 401(k)-type plans.  However, states remain concerned about a lack of clarity regarding preemption by a federal pension law called the Employee Retirement Income Security Act of 1974 (ERISA).  By the end of the year, the U.S. Department of Labor will publish a proposed rule clarifying how states can move forward, including with respect to requirements to automatically enroll employees and for employers to offer coverage.

The link to the President’s announcement  is here:

Although ERIC members offer retirement plans to their workers, we are concerned that there could be unintended consequences of these state-based efforts, including undermining ERISA preemption as well as creating new burdens on ERIC members for any portion of a company’s workforce that is not part of the retirement plan offering.

Posting by Kathryn Ricard, ERIC Senior Vice President for Retirement Policy