Days after the 116^th Congress convened for business, bipartisan legislation that would relax the existing safe harbor for offering annuities in 401(k) plans was reintroduced in the House of Representatives.

The Increasing Access to a Secure Retirement Act, co-sponsored by Rep. Lisa Blunt Rochester, D-DE, and Rep. Tim Walberg, R-MI, would amend the Employee Retirement Income Security Act and give sponsors of 401(k) plans the regulatory clarity on annuities they’ve been requesting for years.

In 2008, the Bush-era Labor Department issued a safe harbor defining sponsors’ fiduciary obligations when selecting annuity providers for retirement plans.

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The guidance was written with the intention of broadening 401(k) participants’ access to guaranteed income products.

But language in the safe harbor left sponsors gun-shy, and according to proponents of annuities, stifled adoption of their use in retirement plans.

Specifically, the safe harbor said plan fiduciaries must determine that insurance companies are “financially able to make all future payments” under annuity contracts.

“The reason why so many employers haven’t taken advantage of the safe harbor is because it unrealistically requires them to assess an insurance company’s ability to satisfy all the obligations of their contracts,” explained Paul Richman, vice president for government affairs at the Insured Retirement Institute, which advocates for insurance company interests. “It’s an onerous burden to put on an employer—particularly a small employer.”

The bill from Reps. Blunt Rochester and Walberg—both members of the Subcommittee on Health, Employment, Labor, and Pensions—would allow plan sponsors to rely on state insurance regulators to determine an insurance company’s future solvency.

Insurance companies would have to provide sponsors annual certifications that they have met cash reserve requirements and have satisfied insurance commissioners’ financial exams.

In effect, the responsibility for determining an insurance company’s future solvency would be moved from sponsors to state insurance commissioners. Sponsors would be required to periodically review insurers after annuities are selected, but they could use state regulators’ validations of providers’ financial health.

“The assessment of an insurer’s solvency is being done by state insurance commissioners—why is it necessary for an employer to assume those obligations and roles?” said Richman.

“This legislation provides a workable path for sponsors to meet their fiduciary obligations,” he added.

Boost from GAO

A 2016 report from the Government Accountability Office was highly critical of the 2008 annuity selection safe harbor.

“It does not provide sufficiently detailed criteria that plan sponsors feel they can use to obtain the liability protection it offers,” GAO said.

GAO recommended the Labor Department soften its requirement that sponsors be responsible for determining an insurance companies long-term financial viability.

But Phyllis Borzi, then the assistant Secretary of Labor and head of the Employee Benefits Security Administration, pushed back.

Clarifying the annuity selection safe harbor to the extent recommended by GAO might “erode consumer protections by degrading the oversight of fiduciaries making such sections,” Borzi wrote in a letter to GAO, which was included in its report.

Not a silver bullet

Passing the Increasing Access to a Secure Retirement Act would certainly help sponsors that want to include annuities in 401(k) plans, says Pat DiCarlo, an attorney in Alston & Bird’s employee benefits group.

The bill clearly states that sponsors would not be required to select the cheapest annuity products. That would insulate plan sponsors from some liability and potential lawsuits, but DiCarlo cautions that it would not serve as a deterrent to all claims.

“It’s progress, but it’s not a silver bullet,” DiCarlo said of the legislation. “The bill doesn’t say you can’t be sued at all—it says you can’t be sued for certain things. Plaintiffs’ attorneys can get creative. They could look at what’s not protected in the safe harbor.”

Even as regulators have made overtures for guaranteed income products in an era of fewer defined benefit plans, annuities have plenty of critics among advisers and the financial services industry.

The plaintiffs’ bar could leverage that criticism, notwithstanding a more accommodating safe harbor.

“You could still see allegations against sponsors that they shouldn’t be offering annuities at all,” said DiCarlo.

Annuities’ relative complexity means sponsors would have to invest in educating participants. That opens the possibility for human error on the part of sponsors, which is something that could also be exploited in lawsuits.

“To do it right, sponsors still would have to have a very clear communications strategy with participants. And they would want to make sure they are also offering other low cost index fund options,” added DiCarlo, who thinks the legislation stands a strong chance of passing.

The IRI’s Richman says Rep. Virginia Foxx, R-NC, chair of the Committee on Education and the Workforce, which oversees the HELP subcommittee, has shown genuine interest in the new safe harbor legislation.

But predicting its fate is difficult. Other meaningful retirement legislation that enjoyed bipartisan support—and included a clearer annuity selection safe harbor—have stalled in both chambers of Congress in previous sessions.

“It all comes down to a question of timing, and time the committee may have available to hold hearings or at least do a mark up,” said Richman.

If the bill were to pass, he says there would be some near-term increase in sponsors including annuities in 401(k) plans.

“But it would involve a large education effort on the advantages of the lifetime income products,” said Richman.