Los Angeles partner Bruce Ashton was quoted in a PLANSPONSOR article titled, “How to Assess Providers for Lifetime Income.”
Plan sponsors do not have to provide in-plan lifetime income solutions for their plan participants. However, the topic is heating up as the issue of how participants will manage account balances to provide sustainable lifelong income garners more attention.
Using a prudent process to choose a provider for a lifetime income solution requires several steps, according to “Fiduciary Considerations in Selecting a Lifetime Income Provider for a Defined Contribution Plan,” by Fred and Bruce’s chapter in the 2014 edition of the New York University Review of Employee Benefits and Executive Compensation. Fiduciaries responsible for selecting annuity providers are not obligated to follow the steps in the safe harbor regulation, the chapter notes. But they should consider four main areas—the company’s financial strength; the provider’s evaluation by the rating agencies; commitment and success in the insurance industry; and diversification of business lines—as part of a prudent process.
Of these areas, financial information about a provider is the most important, said Bruce, and the section that is most likely to require the assistance of an outside professional, he said.
“In my experience, not too many committee members are going to be very knowledgeable about insurance companies,” Bruce said. The largest firms are unlikely to have the expertise in-house to really determine the strength of an insurer.