While both plan fiduciaries and plan participants find value in implementing guaranteed lifetime income solutions into an investment lineup, both tend to have one concern in common: challenges surrounding portability.1

Plan fiduciaries recognize that there may be a need to move their plan to a new recordkeeper in the future, and consequently, assets that are invested in a guaranteed lifetime income solution might have to be liquidated, negatively impacting plan participants.

Plan participants who are relying on guaranteed income solutions to provide income to last throughout their retirement years fear that actions that their plan fiduciary may take in moving their plan to a new recordkeeper will have an impact on obtaining successful retirement outcomes. Luckily, recent innovation has helped address these fears.

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While the new provisions bring some degree of comfort should a move to another recordkeeper arise, it still doesn't solve the logistical challenges that arise from moving assets.

The good news is that innovation continues, and the introduction of middleware providers helps transition these solutions from one recordkeeper to another. These providers act as a bridge between two recordkeepers that offer the guaranteed income solutions and help to reconcile features of the solution.

This can take the form of mapping existing guaranteed income solutions to new guaranteed income solutions, freezing contributions to the current investment option and implementing a new guaranteed income investment option for new contributions, or liquidating the assets completely. Solutions that use middleware technology may also make it easier to continue offering the solution across different recordkeepers, because the technology can act as a connection point across multiple providers.

If a plan fiduciary is considering switching recordkeepers, there are a few things to consider when it comes to their guaranteed lifetime income solution:

  • If the guaranteed income investment option is available on the new platform, confirm that the middleware provider will help enable the plan to continue offering the investment option, preserving the income benefit for plan participants
  • If the guaranteed income investment option is not available on the new platform, participants may be eligible for a qualified distribution to an investment option, such as the IRA rollover option discussed below


Should a participant change jobs or otherwise want to move the guaranteed income investment option to another retirement plan, they may be able to do so. 

If the guaranteed income investment option is available on the new platform, the participant should be able to transfer their investment option and preserve the income benefit. 


Portability provisions

The SECURE Act legislation provides portability provisions that plan fiduciaries can rely on when addressing these concerns. Specifically, Section 109 of the SECURE Act provides that if a plan fiduciary decides to eliminate a guaranteed lifetime income solution, plan participants invested in those solutions can either:

  • Make a direct rollover of the amount invested in the guaranteed lifetime income solution2
  • Distribute an annuity contract to preserve the guaranteed lifetime income feature offered by the prior solution3

The election to do so must occur on or after the date that is 90 days prior to the date a guaranteed lifetime income solution is no longer authorized to be held as an investment option within the plan.

Solutions that can help

Some insurers may offer an IRA rollover solution to help address the need for a direct rollover of the amount invested in the guaranteed lifetime income solution. These IRA solutions could be used in the event that the participant changes jobs or otherwise loses access to the guaranteed lifetime income solution.

If eligible, a participant may be able to take advantage of an IRA rollover solution that offers an income guarantee. However, this option could have different investment options, fees and features. 

To take advantage of the SECURE Act provisions, plan documents should be updated to allow for these in-service distributions.

When deciding whether to add a guaranteed lifetime income investment option to the plan lineup, the plan sponsor may want to determine whether the insurer will make an IRA rollover option available, and if so, what features will be preserved in the new investment option (e.g., the guaranteed income amount, allowance of joint life options, allowance of additional contributions, etc.).

The participant may have other rollover options available to them, and the participant will ultimately make any rollover decision.

[1] "Getting Portability Right Key to Annuities in DC Plans," John Manganaro, PLANSPONSOR (March 19, 2020).
[2] Direct trustee-to-trustee transfer, as described in IRC Section 401(a)(31)(A), to an "eligible retirement plan" as defined in IRC Section 402(c)(8)(B).
[3] An annuity contract purchased for a participant and distributed to the participant by a plan or contract described in IRC Section 402(c)(8)(B)(iii)-(vi).