Selection of Annuity Providers-Safe Harbor for Individual Account Plans

<RULE> DEPARTMENT OF LABOR <SUBAGY>Employee Benefits Security Administration</SUBAGY> <CFR>29 CFR Part 2550</CFR> <RIN>RIN 1210-AC33</RIN> <SUBJECT>Selection of Annuity Providers—Safe Harbor for Individual Account Plans</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Employee Benefits Security Administration, Department of Labor. <HD SOURCE="HED">ACTION:</HD> Direct final rule; request for comments. <SUM> <HD SOURCE="HED">SUMMARY:</HD> This direct final rule (DFR) removes 29 CFR 2550.404a-4 from the Code of Federal Regulations, which is a regulation published in 2008 that provides a fiduciary safe harbor for the selection of annuity providers for the purpose of benefit distributions from individual account retirement plans covered by title I of the Employee Retirement Income Act of 1974 (ERISA). The regulatory safe harbor became unnecessary in 2019 when Congress amended ERISA to add a more streamlined fiduciary safe harbor covering the same activity. Although the statutory safe harbor did not technically nullify or repeal the regulatory safe harbor, its existence offers an unnecessary and inefficient alternative and may inadvertently be a trap for the unwary. This action improves the daily lives of the American people by reducing unnecessary, burdensome, and costly Federal regulations. </SUM> <DATES> <HD SOURCE="HED">DATES:</HD> The final rule is effective September 2, 2025, unless significant adverse comments are received by July 31, 2025. Significant adverse comments are ones which oppose the rule and raise, alone or in combination, a serious enough issue related to each of the independent grounds for the rule that a substantive response is required. If significant adverse comments are received, notification will be published in the <E T="04">Federal Register</E> before the effective date either withdrawing the rule or issuing a new final rule which responds to significant adverse comments. </DATES> <HD SOURCE="HED">ADDRESSES:</HD> Interested persons are encouraged to submit their comments on this direct final rule online. You may submit comments, identified by RIN 1210-AC33, by either of the following methods: <E T="03">Federal eRulemaking Portal: www.regulations.gov.</E> Follow the instructions for submitting comments. <E T="03">Mail:</E> Office of Regulations and Interpretations, Employee Benefits Security Administration, Room N-5655, U.S. Department of Labor, 200 Constitution Avenue NW, Washington, DC 20210, Attn: Selection of Annuity Providers—Safe Harbor for Individual Account Plans Direct Final Rule RIN 1210-AC33. <E T="03">Instructions:</E> All submissions must include the agency name and Regulatory Identifier Number RIN 1210-AC33 for this rulemaking. If you submit comments online, do not submit paper copies. <E T="03">Warning:</E> Do not include any personally identifiable or confidential business information that you do not want publicly disclosed. Comments are public records that are posted online as received and can be retrieved by most internet search engines. <E T="03">Docket:</E> Comments will be available to the public, without charge, online at the Federal eRulemaking Portal at <E T="03">http://www.regulations.gov,</E> on the Department's website at <E T="03">http://www.dol.gov/agencies/ebsa,</E> and at the Public Disclosure Room, Employee Benefits Security Administration, Room N-1513, 200 Constitution Ave. NW, Washington, DC 20210. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Jason DeWitt, Office of Regulations and Interpretations, Employee Benefits Security Administration, (202) 693-8500. This is not a toll-free number. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Background</HD> This DFR is being taken pursuant to Executive Order 14192, titled Unleashing Prosperity Through Deregulation. <SU>1</SU> <FTREF/> <FTNT> <SU>1</SU>  90 FR 9065 (Feb. 6, 2025). </FTNT> Individual account retirement plans such as 401(k) plans typically provide benefit distributions in the form of a lump sum payment. However, under certain circumstances, these plans are required to provide payments in the form of an annuity, and some plan sponsors offer an annuity as a matter of voluntary plan design. <SU>2</SU> <FTREF/> For individual account retirement plans covered by title I of the Employee Retirement Income Security Act (ERISA) that offer an annuity, the selection of annuity provider is a fiduciary act governed by the standards in ERISA section 404. <SU>3</SU> <FTREF/> ERISA section 404(a)(1)(B) requires fiduciaries to discharge their duties with the care, skill, prudence, and diligence under the prevailing circumstances that a reasonable person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims. <FTNT> <SU>2</SU>   <E T="03">See</E> ERISA section 205. </FTNT> <FTNT> <SU>3</SU>  29 U.S.C. 1104. </FTNT> In the Pension Protection Act of 2006, Congress directed the Department to clarify that the selection of an annuity contract as an optional form of distribution from an individual account retirement plan is not subject to the safest available annuity standard under Interpretive Bulletin 95-1 but is subject to all otherwise applicable fiduciary standards. <SU>4</SU> <FTREF/> The Department responded in 2008 by issuing a regulatory safe harbor for the selection of annuity providers for the purpose of benefit distributions from individual account retirement plans, codified at 29 CFR 2550.404a-4. <SU>5</SU> <FTREF/> The safe harbor made clear that it did not establish minimum requirements or the exclusive means for satisfying the responsibilities. <FTNT> <SU>4</SU>  Pension Protection Act of 2006 section 625, Public Law 109-280, 120 Stat. 780 (2006). </FTNT> <FTNT> <SU>5</SU>  73 FR 58447 (Oct. 7, 2008). </FTNT> More recently, in the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), Congress made several amendments to ERISA related to lifetime income options. <SU>6</SU> <FTREF/> SECURE Act section 204 added a statutory safe harbor in a new paragraph (e) of ERISA section 404 for fiduciaries selecting an annuity provider for an individual account retirement plan. <FTNT> <SU>6</SU>  Division O of the Further Consolidated Appropriations Act, 2020, Public Law 116-94, 133 Stat. 2534 (2019). </FTNT> <HD SOURCE="HD1">II. Discussion</HD> This DFR removes the regulatory safe harbor (29 CFR 2550.404a-4) because the statutory safe harbor in ERISA section 404(e) provides a more streamlined, less costly safe harbor than the regulation, but with the same level of safe harbor relief. Unlike the regulatory safe harbor, the statutory safe harbor streamlines compliance by allowing the plan fiduciary to rely on a written representation of the annuity provider's compliance with applicable state insurance law regarding the financial capability of the insurer. <SU>7</SU> <FTREF/> This provision both streamlines the safe harbor  <SU>8</SU> <FTREF/> and offers a level of certainty not available under the regulatory safe harbor. Moreover, removing the regulatory safe harbor also eliminates situations in which a plan fiduciary might waste time and resources in analyzing and comparing the pros and cons of the two safe harbors to determine which safe harbor is best. Finally, allowing the regulatory safe harbor to remain in the Code of Federal Regulations presents a risk that an unwary fiduciary may inadvertently rely on it instead of seeking out the more streamlined, less costly, and more certain safe harbor in the statute. Put differently, the continued appearance in the CFR could mislead interested parties into believing that no other safe harbor exists or that there are benefits to using the regulatory safe harbor rather than the statutory safe harbor. The regulatory safe harbor is removed prospectively as of the effective date and has no effect on its legal effectiveness prior to that date. <SU>9</SU> <FTREF/> The Department welcomes comments on the conclusions in this DFR. <FTNT> <SU>7</SU>  29 U.S.C. 1104(e)(2). </FTNT> <FTNT> <SU>8</SU>  Permitting a fiduciary to rely on written representations from the insurer as consideration of the insurer's financial capability streamlines the fiduciary's process as compared to the regulatory safe harbor, which requires the fiduciary to “appropriately consider[ ] information sufficient to assess the ability of the annuity provider to make all future payments under the annuity contract.” <E T="03">See</E> 29 CFR 2550.404a-4 (b)(2). The statutory safe harbor further streamlines the process by omitting the expert consultation provision contained in the regulatory safe harbor. <E T="03">See</E> 29 CFR 2550.404a-4(b)(5). </FTNT> <FTNT> <SU>9</SU>  As is the case with legal safe harbors generally, the statutory safe harbor in section 404(e) of ERISA is not the exclusive method a fiduciary could use to comply with their statutory duty of prudence in section 404(a)(1)(B) of ERISA. Consequently, the removal of the regulatory safe harbor by the Department is not to be construed as the Department's disavowal of its principles. Thus, if a fiduciary were to satisfy (intentionally or otherwise) the conditions in the regulatory safe harbor notwithstanding its removal from the CFR, the Department would not challenge the selection of the annuity under section 404(a)(1)(B) of ERISA. </FTNT> <HD SOURCE="HD1">III. Procedural Issues and Regulatory Review</HD> <HD SOURCE="HD2">A. Review Under Executive Orders 12866</HD> Executive Order (E.O.) 12866, “Regulatory Planning and Review,” 58 FR 51735 (Oct. 4, 1993), requires agencies, to the extent permitted by law, to (1) propose or adopt a regulation only upon a reasoned determina ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 21k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━