![]() ![]() “In addition, the fiduciary obligation of prudence… requires, at a minimum, that plan fiduciaries conduct an objective, thorough and analytical search for the purpose of identifying and selecting providers from which to purchase annuities.”Ĭlearly, this guidance requires fiduciaries to be diligent in gathering relevant data and analyzing it thoroughly and objectively for the purpose of making informed decisions that are in the best interest of the plan, its participants and beneficiaries.įurthermore, under ERISA plan fiduciaries have an ongoing duty to prudently monitor and evaluate service providers, investments and other plan activities. Specifically, in describing a prudent selection process for an annuity provider, the DOL explained what is required of a fiduciary by stating in Interpretive Bulletin 95-1(c) as follows: ![]() ERISA does not specifically explain how fiduciaries must fulfill these duties however, the DOL explains the relevant standards in a fair amount of detail through advisory opinions, regulations and other guidance. Section 404(a) of ERISA sets forth the key fiduciary duties of: (i) absolute loyalty to the plan participants and their beneficiaries ( e.g., the requirement to act solely in their best interests) (ii) the exclusive purpose requirement ( e.g., to duty provide benefits at a reasonable cost) and (iii) the prudent person rule ( e.g., the requirement to act with the care, skill, prudence and diligence of what amounts to an expert). General Fiduciary StandardsĮRISA imposes high standards upon fiduciaries responsible for managing the operations of retirement plans. However, the DOL does note in the FAB that “The Department is considering guidance on fiduciary selection and monitoring of annuity providers and contracts that are offered as investment options under defined contribution plans as part of its project on the Department’s regulatory agenda to evaluate possible amendments to the Safe Harbor Rule.” Until such guidance is provided, plan investment fiduciaries will have to rely on the general fiduciary standards described below, including the Safe Harbor Rule. ![]() Somewhat unfortunately, the FAB does not address the extent to which, if at all, the Safe Harbor Rule applies to the selection of insurance companies and products providing for guaranteed payments other than an immediate annuity or a qualifying longevity annuity contract (a “QLAC”) option. To address these concerns, the FAB focuses on the issue of how to apply the “time of selection” standard of the Safe Harbor Rule. The DOL also expresses concern that “confusion or lack of clarity regarding the nature and scope of fiduciary responsibilities to act prudently in making, monitoring and reviewing annuity selections under a defined contribution plan could lead plan sponsors or their advisors in some instances to overestimate or otherwise misunderstand the duration or extent of those fiduciary responsibilities.” And, these problems could amount to disincentives to offering plan participants annuities as a lifetime distribution option. In particular, the DOL says questions continue to be raised about how to reconcile the “time of selection” standard in the Safe Harbor Rule - “which embodies the general principle that the prudence of a fiduciary decision is evaluated under ERISA based on the information available at the time the decision was made” - with the fundamental fiduciary obligations to continue to monitor and review fiduciary decisions. In Field Assistance Bulletin (FAB) 2015-2 (the “FAB”), issued this past summer, the DOL provides guidance that clarifies the Safe Harbor Rule, in response to what the DOL says is a “recurring comment” from plan fiduciaries that the Safe Harbor Rule remains unclear as to the scope of their obligations with respect to selecting annuities. In 2008, the Department of Labor (DOL) issued a safe-harbor regulation for plan investment fiduciaries regarding a prudent process for selecting and monitoring annuity providers and contracts for defined contribution plans (the “Safe Harbor Rule”). ![]()
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