Section 204 (“Fiduciary Safe Harbor for Selection of Lifetime Income Provider”) will provide certainty for plan sponsors in the selection of lifetime income providers, a fiduciary act under ERISA. Under the bill, fiduciaries are afforded an optional safe harbor to satisfy the prudence requirement with respect to the selection of insurers for a guaranteed retirement income contract and are protected from liability for any losses that may result to the participant or beneficiary due to an insurer’s inability in the future to satisfy its financial obligations under the terms of the contract. Removing ambiguity about the applicable fiduciary standard eliminates a roadblock to offering lifetime income benefit options under a defined contribution plan. https://waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/documents/SECURE%20Act%20section%20by%20section.pdf
Section 404 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1104) was amended to provide pension sponsors with safe harbor with respect to the selection of an insurer for a guaranteed retirement income contract. the requirements of subsection (a)(1)(B) will be deemed to be satisfied if a fiduciary:
(A) engages in an objective, thorough, and analytical search for the purpose of identifying insurers from which to purchase such contracts;
(B) with respect to each insurer identified under subparagraph (A)—
(i) considers the financial capability of such insurer to satisfy its obligations under the guaranteed retirement income contract; and
(ii) considers the cost (including fees and commissions) of the guaranteed retirement income contract offered by the insurer in relation to the benefits and product features of the contract and administrative services to be provided under such contract; and
(C) on the basis of such consideration, concludes that—
(i) at the time of the selection, the insurer is financially capable of satisfying its obligations under the guaranteed retirement income contract; and
(ii) the relative cost of the selected guaranteed retirement income contract as described in subparagraph (B)(ii) is reasonable.
A fiduciary will be deemed to satisfy the requirements of paragraphs (1)(B)(i) and (1)(C)(i) if:
(A) the fiduciary obtains written representations from the insurer that—
(i) the insurer is licensed to offer guaranteed retirement income contracts;
(ii) the insurer, at the time of selection and for each of the immediately preceding plan years—
(I) operates under a certificate of authority from the insurance commissioner of its domiciliary State which has not been revoked or suspended;
(II) has filed audited financial statements in accordance with the laws of its domiciliary State under applicable statutory accounting principles;
(III) maintains (and has maintained) reserves which satisfies all the statutory requirements of all States where the insurer does business; and
(IV) is not operating under an order of supervision, rehabilitation, or liquidation;
(iii) the insurer undergoes, at least every 5 years, a financial examination (within the meaning of the law of its domiciliary State) by the insurance commissioner of the domiciliary State (or representative, designee, or other party approved by such commissioner); and
(iv) the insurer will notify the fiduciary of any change in circumstances occurring after the provision of the representations in clauses (i), (ii), and (iii) which would preclude the insurer from making such representations at the time of issuance of the guaranteed retirement income contract; and
(B) after receiving such representations and as of the time of selection, the fiduciary has not received any notice described in subparagraph (A)(iv) and is in possession of no other information which would cause the fiduciary to question the representations provided.
Nothing in this subsection shall be construed to require a fiduciary to select the lowest cost contract. A fiduciary may consider the value of a contract, including features and benefits of the contract and attributes of the insurer (including, without limitation, the insurer’s financial strength) in conjunction with the cost of the contract.
(4)(A) For purposes of this subsection, the time of selection is—
(i) the time that the insurer and the contract are selected for distribution of benefits to a specific participant or beneficiary; or
(ii) if the fiduciary periodically reviews the continuing appropriateness of the conclusion described in paragraph (1)(C) with respect to a selected insurer, taking into account the considerations described in such paragraph, the time that the insurer and the contract are selected to provide benefits at future dates to participants or beneficiaries under the plan.
Nothing in the preceding sentence shall be construed to require the fiduciary to review the appropriateness of a selection after the purchase of a contract for a participant or beneficiary.
(4)(B) A fiduciary will be deemed to have conducted the periodic review described in subparagraph (A)(ii) if the fiduciary obtains the written representations described in clauses (i), (ii), and (iii) of paragraph (2)(A) from the insurer on an annual basis, unless the fiduciary receives any notice described in paragraph (2)(A)(iv) or otherwise becomes aware of facts that would cause the fiduciary to question such representations.
(5) A fiduciary which satisfies the requirements of this subsection shall not be liable following the distribution of any benefit, or the investment by or on behalf of a participant or beneficiary pursuant to the selected guaranteed retirement income contract, for any losses that may result to the participant or beneficiary due to an insurer’s inability to satisfy its financial obligations under the terms of such contract.
(6) For purposes of this subsection—
(A) The term ‘insurer’ means an insurance company, insurance service, or in21 surance organization, including affiliates of such companies.
(B) The term ‘guaranteed retirement income contract’ means an annuity contract for a fixed term or a contract (or provision or feature thereof) which provides guaranteed benefits annually (or more frequently) for at least the remainder of the life of the participant or the joint lives of the participant and the participant’s designated beneficiary as part of an individual account plan.