The Department of Labor withdrew its rule that would have eliminated the long-standing safe harbor standards for the industry provided by the Pension Protection Act of 2006, due to “the receipt of significant adverse comments,” the DOL announced on Monday.
In July, the DOL proposed to eliminate various rules to streamline regulations per directives from the Trump Administration, including the safe harbor rule, which the agency cited as “redundant” and no longer necessary.
However, the DOL’s withdrawal comes after pushback from industry groups. In a letter sent to the DOL last week, the Insured Retirement Institute, a leading trade association for the retirement industry, said that the proposed withdrawal of a long-standing regulatory safe harbor provision for the selection of annuity providers for benefit distributions from individual account retirement plans could “unintentionally lead to reluctance in offering lifetime income options,” which would be contrary to the goals of SECURE 2.0 in “promoting guaranteed retirement income.”
The regulatory safe harbor, established under the Pension Protection Act of 2006, provides fiduciaries with a clear and comprehensive standard for selecting both annuity providers and contracts, according to the IRI. The safe harbor, enacted under SECURE 2.0, primarily addresses the financial viability of insurers, while the regulatory safe harbor encompasses broader fiduciary duties regarding both the provider and the annuity contract itself.
The DOL had considered these two safe harbors redundant. However, “retaining the Regulation’s safe harbor will help ensure that fiduciaries have access to well-understood and time-tested guidance,” wrote Emily Micale, Director, Regulatory Affairs at IRI.
The IRI, which represents asset managers, broker-dealers, and distributors who deliver retirement income to millions of American workers and retirees, also said that maintaining both safe harbors affords fiduciaries flexibility to choose the compliance pathway best suited to their plan design, participant demographics, and product offerings.
Also, the ERISA Advisory Council, a 15-member council that provides advice on policies and regulations affecting employee benefit plans, has also urged the DOL to safeguard lifetime income options in 401(k) plans. In June, the EAC sent a letter to the DOL recommending that the agency create either regulatory or sub-regulatory guidance or a “tips sheet” which would “serve as a roadmap” for fiduciaries considering lifetime income options.
This regulation “could facilitate greater plan adoption” for lifetime income QDIA options, such as an annuity,” according to the council.
Related: More ‘qualified default investment alternatives’ in retirement plans: ERISA Advisory Council
Now, effective immediately, the DOL has repealed the proposal that would have repealed the safe harbor provided by the Pension Protection Act, which would have gone into effect September 1.
“We’re grateful that DOL withdrew this direct final rule,” said Micale, in a statement. “We appreciate that DOL and the Trump Administration are seeking ways to reduce unnecessary regulatory burdens. However, the direct final rule would make the regulatory climate more difficult for financial professionals and plan sponsors and potentially would have negatively affected retirement savers’ access to beneficial retirement products and strategies.”
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