Are GLWB products safe?

The IRIC sets out to provide a few assurances

Plan sponsors have wanted little to do with Guaranteed Lifetime Withdrawal Benefit products but the Institutional Retirement Income Council thinks much of the concern is overblown. 

According to a 2012 Deloitte survey, only 4 percent that year included a GLWB as an option in their 401(k) menu, and only 19 percent considered doing so. Asked why, one-third of sponsors cited “concerns about potential liability of them as an investment product.” 

That’s not good for providers of GLWB products, or arguably, the plan participants who looking for a guaranteed benefit over the course of their retirement, set at a sustainable withdrawal rate. 

This week, the IRIC tried to push things in a different direction by pointing out an article in the most recent edition of the Benefits Law Journal that sets out to dispel sponsor misconceptions of the fiduciary liability to GLWBs. 

The fiduciary standards that apply to GLWBs are not “materially different” than the fiduciary standards applicable to other lifetime options, like annuities, or for that matter, any other investment a sponsor may offer, according to the article’s authors, Robert Eccles, Gregory Jacob, and Wayne Jacobsen. The three are ERISA attorneys who’ve created a “roadmap” for sponsors to assure them they can offer GLWBs without incurring fiduciary liability

For those unfamiliar with GLWBs, the lawyers noted that the idea is to offer participants “assurance that, regardless of the performance of the underlying investment fund, and so long as the participant does not exceed certain specified maximum annual withdrawal rates, he or she will have access to a guaranteed minimum income stream for life.” 

When the beneficiary dies, the benefits can be passed to heirs, unlike many annuity contracts, they wrote. 

The attorneys also provided details on how sponsors can address liability concerns by carefully reviewing fees, selecting the right provider, evaluating their provider’s ability to make good on the contracts, how to best periodically monitor providers, and how to educate participants on the value of GLWB products.

“Although GLWB products are relatively new, they do not raise substantially new fiduciary questions,” they wrote. “Because GLWBs combine security, upside, and fee features that already exist in other investment products that are widely used by employee retirement plans, there is significant regulatory and case law guidance available that can be drawn upon by fiduciaries in fulfilling their fiduciary obligations when offering GLWBs.”

William Charyk, president of the IRIC, which provided partial funding for the article, thinks the attorneys’ roadmap will lead to more employers to look at GLWBs as viable and legally safe options. 

“Their comprehensive roadmap will provide plan fiduciaries with confidence to construct a prudent process, consistent with their legal obligations, for evaluating, selecting and administering GLWBs,” said Charyk.

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