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June 4, 2019

Fred Reish Quoted in The New York Times on Changing Rules Governing 401(k) Plans

Los Angeles partner Fred Reish was quoted in The New York Times in an article titled “Confusing Options May Be Coming to Your 401(k). It Could Cost You.” The article discusses the Setting Every Community Up for Retirement Enhancement Act of 2019, which passed the House with an overwhelming bipartisan majority on May 23.

Among the two dozen or so rule changes is a provision that would eliminate some of the liability for employers who add annuities to the menu of options for their 401(k) plans — including expensive and complex products that purport to offer the peace of mind of a guaranteed income stream.

Complex annuities are less common in corporate 401(k) plans, but could become more mainstream if the bill becomes law. These products are more lucrative for insurers because they tend to have higher costs in return for the extra features they add.

Some experts worry that companies — particularly smaller employers — will be more likely to choose problematic products, in large part because they often rely on brokers to educate them about complex annuities. And these brokers are typically not required to put the customer’s interest first.

“It’s possible that the safe harbor will be marketed in a way that makes plan sponsors, and particularly small plan sponsors, believe that they don’t need to review the annuities at all,” Fred said. “That would be a mistake.”

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