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Retirement News: Family Savings Act Passes House


Earlier this week, the Family Savings Act passed out of the U.S. House of Representatives by a 240-177 vote, according to a recent article from BenefitsPRO. The legislation allows non-related employers to pool workers under one defined contribution plan, relaxing existing regulatory guidance on employer participation in Multiple Employer Plans.

The Family Savings Act is one of three bills packaged under Tax Reform 2.0 and originally included 17 provisions intended to relax restrictions on contributions and mandatory withdrawals from IRAs and create Universal Savings Accounts that would allow for tax-free growth. The original bill, however, did not include a provision creating an annuity selection safe harbor for fiduciary sponsors of defined contribution plans, but that has changed.

In the 11th hour, House Ways and Means Committee Chair Kevin Brady, R-TX added an amendment that does just that. The new amendment states that employers meet their fiduciary obligations at the time of selecting an annuity provider if they engage in an “objective, thorough, and analytical” provider search. They are obligated to consider the financial capability of an annuity provider’s ability to make good on future obligations.

Fiduciaries are required to obtain written representations certifying that insurance companies have been licensed by state insurance commissioners for a minimum of seven years prior to an insurer’s selection as an annuity provider plan. Written certification that insurance companies maintain adequate capital reserves is also required. Additionally, the amendment explicitly states that employers do not have to select the cheapest annuities. By reviewing providers annually, employers will satisfy their fiduciary obligations.

The amendment also explicitly states that employers are not required to review the appropriateness of a provider after plan participants have purchased an annuity through a defined contribution plan. It also says that employers will not be liable for how contributions to annuities are invested in underlying products, nor are they liable for losses due to an insurance company’s inability to satisfy future obligations.

Chairman Brady’s amendment is in response to the public criticism of the original version of the Family Savings Act by leading trade organizations for insurance companies. Slack adoption of annuities in 401(k) plans is partially to blame, according to some, to employers’ fears of liability if insurers prove unable to meet annuity contractual obligations. An existing Labor Department safe harbor states that employers are required to assess the future solvency of an annuity provider.  

According to the Insured Retirement Institute, an organization which lobbies on behalf of insurance providers, less than 10% of 401(k) plans offer a lifetime income investment option. Yet 90% of employer sponsors claim to want a clearer annuity selection safe harbor.

Written by Rachel summit

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