July 16, 2015

DOL Clarifies Fiduciary Duty to Monitor Under Safe Harbor Annuity Rules

The Department of Labor (DOL) has issued guidance clarifying the fiduciary rules governing purchases of annuities in defined contribution (DC) plans. In Field Assistance Bulletin (FAB) 2015-02, the DOL addresses questions that have risen about how to reconcile the “time of selection” standard in the DOL’s safe harbor rule for annuity purchases by DC plans with the duty to monitor and review certain fiduciary decisions under the Employee Retirement Income Security Act*. The DOL believes that confusion or lack of clarity has led some DC plans to avoid offering annuities as a distribution option.

Under the guidance, the DOL noted:

  • The periodic review requirement of the safe harbor rule does not mean that a fiduciary must review the prudence of retaining an annuity provider each time an annuity is purchased as a distribution option.
  • Regular periodic reviews are required, with the timing based on facts and circumstances. The need for additional reviews also is based on facts and circumstances, which could include, for example, a “red flag” about the provider such as a rating service downgrade or complaints about untimely payments.
  • The requirement to periodically review an annuity provider ends when the provider is no longer an available provider of distribution annuities (whether immediate annuities or longevity annuities) under the plan.
  • If a plaintiff sues claiming that the plan made an imprudent selection of the annuity provider that distributed an annuity contract to the plaintiff, the claim would have to be brought within six years of the date on which the plan assets were used to purchase the contract.

If you have any questions about the guidance, please contact your Sibson consultant or send us a note.


* The Affordable Care Act is the shorthand name for the Patient Protection and Affordable Care Act (PPACA), Public Law No. 111-48, as modified by the subsequently enacted Health Care and Education Reconciliation Act (HCERA), Public Law No. 111-152.


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