Benefits and executive compensation partners Fred Reish and Bruce Ashton authored an article for National Association of Plan Advisors Net the Magazine, titled “Guaranteed Retirement Income: The Impact of the Secure Act,” that discussed the SECURE Act’s (the Act) safe harbor and how it impacts fiduciaries.
The authors noted that in the past 40 years the retirement landscape has shifted from being focused on defined benefit plans to 401(k) plans; however, many participants and retirees are not prepared to invest for long-term retirement security. One solution for participants is to invest a portion of their assets in guaranteed retirement income products, which is why the Act’s focus on retirement income is important.
The authors highlighted the Act’s three retirement income provisions, one of which provides the fiduciary safe harbor for the selection of a guaranteed retirement provider. “The new safe harbor means that the fiduciary will not be liable if the insurance company later defaults on its obligation to participants who invest in the contract,” the authors explained.
To obtain the safe harbor protection, the authors outlined four steps a fiduciary must follow and added that the key to the safe harbor is the process for considering the financial capability of the insurer. If a fiduciary obtains specified information from the insurer, the fiduciary will be deemed to have satisfied the consider-and-conclusion requirement relative to financial capability.
The authors emphasized that the Act provides a solution for fiduciaries who have been reluctant to offer guaranteed retirement income products because of the difficulty in assessing the financial stability of the insurance company.