ERISA Advisory Council Delves Into QDIA Retirement Income Offerings

An ERISA Advisory Council meeting held on Tuesday detailed new approaches to integrate retirement income solutions with qualified default investment alternatives, with the goal of providing plan sponsors a wider range of options to help participants secure steady income in retirement.

The meeting came after the advisory council voted in May to focus attention on issues related to QDIAs and welfare plan claims and appeals. The council studies issues related to the Employee Retirement Income Security Act and makes recommendations to the Employee Benefits Security Administration, as per the council’s mandate from the Department of Labor.

Jack Towarnicky, an ERISA and employee benefits compliance and planning attorney with the Koehler Fitzgerald LLC law firm, said the council is studying the effectiveness of QDIAs in both the accumulation and decumulation phases of retirement.

“This week, we see witness testimony that confirms the current market QDIA offerings, including those that incorporate insured or pooled lifetime income components, as well as QDIA offerings currently in development,” he said.

Retirement experts speaking on the first of a three-day series of sessions discussed different product offerings to show how defined contribution in-plan annuity options are currently being offered. They also provided written testimony of their findings to EBSA. The council also considered lifetime income and other issues related to QDIAs during three days of hearing in July.

Embedded Annuities

Beth Halberstadt, a senior partner in and the U.S. defined contribution investment leader at Aon, outlined DC investment offerings from TIAA that embed annuities into retirement plans using two key approaches. The first, TIAA RetirePlus, is available exclusively to plans managed on TIAA’s recordkeeping platform, she explained. It allows plan sponsors or outside fiduciaries to construct diversified investment models, including a mix of asset classes such as fixed-income options, and incorporates TIAA’s traditional annuities as part of the fixed-income portion.

Halberstadt explained that when using the offering, a plan sponsor or an outside fiduciary would create investment models diversified across several asset classes from the funds that are being offered in the plan.

“Sometimes we call those model portfolios, but it’s an asset allocation methodology,” she says. “TIAA annuities, investment option, the fixed-income option or other TIAA annuities are incorporated into those models as one of the fixed-income asset classes. For that solution, TIAA is not a fiduciary; they’re just that platform provider.”

Another solution, the Nuveen Lifecycle Income Solution, is available to plans managed by either TIAA or third-party recordkeepers, Halberstadt noted. Delivered through a target-date-fund structure, this solution is housed within a collective investment trust vehicle. It includes a secure income account component, allowing participants to elect an annuity payout option upon retirement or maintain liquidity. Halberstadt emphasized that participants must actively choose the annuity payment option to receive a guaranteed income stream.

Insured QDIAs

Holly Verdeyen, a partner in and the U.S. defined contribution leader at Mercer, discussed how Pacific Life Insurance Co. is combining life insurance products with QDIAs, allowing for customizable retirement solutions. Verdeyen noted that Pacific Life chose not to delve into specific products for the council meeting, explaining instead how offerings could be integrated with QDIAs such as target-date funds, managed accounts and balanced funds.

“Instead of going through a variety of products that they offer, what they decided to do was talk about how their products could be used in combination with QDIAs to create a bunch of different features that the buyer could choose from in an institutional capacity,” she says.

By blending insurance products with institutional retirement offerings, Pacific Life provides sponsors with options to tailor retirement plans to meet participants’ specific income needs. Whether through retail or institutional channels, Verdeyen added, Pacific Life solutions can deliver more comprehensive retirement income planning.

These new combinations of annuity and life insurance products are designed to help participants achieve financial security by providing both flexibility and guaranteed income streams, she said.

The ERISA Advisory Council is a 15-member advisory panel appointed by the Secretary of Labor in staggered three-year terms. Sessions will continue into Wednesday and Thursday.