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GAO: DOL could do more to encourage employers to adopt lifetime income options

The U.S. Government Accountability Office found that many401(k) plans do not offer an annuity and the U.S. Department of Labor could domore to get employers to adopt lifetime income options.

Responses to the agency's non-generalizable questionnairefrom 401(k) plan record keepers showed that two-thirds did not offer withdrawaloptions and about three-quarters did not offer annuities. Responses to thequestionnaire represented more than 40% of all 401(k) assets and about aquarter of plans as of the end of 2014.

The Department of Labor has prescribed steps that plansponsors can take to satisfy their fiduciary duties when selecting annuityproviders for their 401(k) plans. However, according to industry stakeholdersGAO interviewed, those steps are not often used because they include assessing"sufficient" information to "appropriately" conclude thatan annuity provider will be financially able to pay future claims withoutdefinitions for those terms. Without clearer criteria to select an annuityprovider, fear of liability may deter plan sponsors from offering annuities.

The GAO also found that a mix of lifetime income options tochoose from is not usually available. The Department of Labor provides anincentive in the form of limited liability relief to plan sponsors that, amongother things, provide participants at least three diversified investmentoptions. However, no such incentive exists for plan sponsors offering a mix oflifetime income options. Without some degree of liability relief, plan sponsorsmay be reluctant to offer a diverse mix of lifetime income options to theirparticipants.

The GAO made a number of recommendations to the LaborDepartment, including that it clarify the criteria to be used by plan sponsorsto select an annuity provider, consider providing limited liability relief foroffering an appropriate mix of lifetime income options and issue guidance toencourage plan sponsors to select a record keeper that offers annuities fromother providers.