Wagner: GLWBs Key to Longevity Planning

“Right now is a pivotal time for the retirement plan industry,” declared Wagner Law Group president Marcia S. Wagner — capturing the tenor of a discussion about longevity planning at a March 23 panel discussion at the NAPA 401(k) Summit in New Orleans.

Guaranteed income does not come from systematic withdrawals or managed payouts; the best solution, Wagner said, are guaranteed lifetime withdrawal benefits (GLWBs). The initial value of GLWBs’ benefit base is based on contributions; their future value may either “roll up” by a fixed percentage each year or “step up” based on the anniversary value of the account.

The Department of Labor’s take on distribution annuities is a problem, said Wagner, because the DOL “has made it clear that monitoring and purchasing of distribution annuities are a fiduciary function,” but at the same time has not offered guidance to help with discharging those duties.

However, the lack of DOL guidance has not stopped investment in GLWBs — “nor should it,” she said.

Challenges of Longevity Planning

Plan sponsors and advisors face many challenges regarding longevity planning, noted panelist Chuck Williams, managing director at Sheridan Road. These include choosing a product provider, benchmarking services and costs, education, determining participant demand, fiduciary concerns and timing of implementation.

When benchmarking, Williams suggests considering the following factors: company size, location, turnover rate and business plan. The problem with the business plan is that now so much planning is short-term, Williams said, and this kind of planning is long-term. In addition, some companies are reluctant to set up such an arrangement if they might be sold in a few years.

Fog Around ERISA 3(16) Services Will Linger

Fiduciary issues and uncertainty concerning ERISA Section 3(16) services will persist into the future, said the panel. What is not unclear is that fiduciary duties are involved. “It is a fiduciary decision to choose a 3(16),” observed Roberta Kaplan, fiduciary compliance consultant for The ANGELL Pension Group. But it doesn’t stop there, since a plan sponsor must then monitor the 3(16).

One thing a plan sponsor should not do is assume that it can fully absolve itself of fiduciary duties, even if it has contracted with a TPA, said Fred Reish of Drinker, Biddle & Reath. For instance, said Wagner, “When a plan sponsor thinks that having another party sign the Form 5500 absolves them of responsibility, it puts that plan sponsor at risk. Others go above and beyond.” Handling nondiscrimination testing is one such service, she noted.

The good news is that 3(16)s exist at all. “It’s hard for me to believe that a small business can understand and handle” all the fiduciary duties that must be discharged. “It’s fantastic that vendors are there to help HR departments to handle new fiduciary responsibilities,” noted Wagner.

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