backOn September 23, 2025, the Employee Benefits Security Administration (“EBSA”) of the Department of Labor (“DOL”) issued Advisory Opinion 2025-04A1Advisory Opinion 2025-04A can be found here. (the “Opinion”) to AllianceBernstein L.P. (the “Manager”) relating to whether certain insurance products can be selected as a default investment option for defined contribution plan (e.g., 401(k) plan) participants. In short, the Opinion provides that guaranteed lifetime income products may be, or may be part of, a qualified default investment alternative (“QDIA”). Further, the Opinion describes how a fiduciary can satisfy its obligations to prudently select and monitor insurers when selecting insurance investments.
This comes following the issuance of President Trump’s Executive Order on “Democratizing Access to Alternative Assets for 401(k) Investors” (“Executive Order”) – which required the DOL and other governmental agencies to review and examine regulatory guidance to allow defined contribution plans to invest in a broader array of investments.2Please find our Client Alert on the Executive Order here. The Opinion reflects the substance of the Executive Order. We expect further interpretive guidance from the DOL expanding the regulatory guidance for a broader array of defined contribution plan investments.
Background on QDIAs
Defined contribution plans are individual account plans, meaning that each participant has his or her own plan account. Most defined contribution plans allow participants to determine how to invest their respective accounts within the investment menu selected by the plan fiduciary. In the absence of an investment election, a participant’s defined contribution plan account will be invested in accordance with the QDIA regulation issued by the DOL329 C.F.R. Section 2550.404c-5.. If the plan complies with the regulation, the plan fiduciary remains responsible for the prudent selection and monitoring of the QDIA, but is not be liable for any loss that occurs as a result of an investment in the QDIA. Fiduciaries are careful to select QDIAs that meet the conditions of the regulation to receive safe harbor fiduciary liability protection.
For an investment to be a QDIA, it must fit within one of five categories determined by the DOL to achieve “meaningful retirement savings over the long-term.” The Opinion summarizes three relevant categories as follows: “paragraph (e)(4)(i) describes an investment product with a mix of investments that takes into account the individual’s age or retirement date (e.g., a target date fund); paragraph (e)(4)(ii) describes an investment product with a mix of investments that takes into account the characteristics of the group of a participants as a whole, rather than each individual (e.g., a balanced fund); and paragraph (e)(4)(iii) describes an investment management service that allocates contributions among existing plan options to provide an asset mix that takes into account the individual’s age or retirement date (e.g., a professionally managed account).”
At a high level, the conditions of QDIAs are: (i) assets are invested in a QDIA; (ii) plan participants had the opportunity to direct investments but did not; (iii) applicable notices and information are provided to plan participants; (iv) the participants have certain transfer rights with respect to the QDIA; and (v) the plan offers a broad range of investment alternatives. Historically, the transferability requirements have been a barrier to certain insurance products as QDIAs.
Investment Product
The Opinion includes a detailed description of the applicable facts, which we summarize below. The Manager offers a Lifetime Income Strategy (“LIS”) program as an investment option for defined contribution plans, and requested confirmation that the LIS program could qualify as a QDIA. Participants receive extensive communications and notices regarding the program designed to comply with the requirements under ERISA, including the QDIA conditions.
Under the LIS program, the Manager acknowledges that it is an investment manager and fiduciary within the meaning of Section 3(38) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The Manager constructs model portfolios using the investments included within the plan’s investment menu. At a high level, a participant’s allocation to equities is higher when a participant is young and is reduced as the participant ages. When a participant reaches age 50 and ending 2 years before his or her designated retirement age, the LIS program funds a secure income portfolio (the “SIP”) through a variable annuity contract, with the goal of providing participants a guaranteed lifetime income.
Either the participant or, if no selection is made, the plan sponsor selects a default amount allocated to the SIP. Funds are not allocated to the SIP for the first 90 days of a participant’s investment in the LIS program. Allocations are made to the SIP each calendar quarter. LIS program investments can be transferred or withdrawn from the SIP (without a termination or liquidity fee).
Following the participant’s death, beneficiaries receive any remaining account balance (which includes balances in the SIP). If the participant elects a joint life annuity under the SIP, the participant’s spouse is eligible to receive lifetime income payments (with remaining account balances being paid to the spouse’s beneficiary following his or her death). In addition, the SIP provides protection to participants against investment losses due to either poor returns or risks related to the longevity of payments (i.e., if the participant and beneficiaries outlive their life expectancies).
Guidance has long been sought on whether lifetime income products could be used within or as QDIAs in compliance with the regulations. In line with the recent Executive Order, the Opinion confirms that such products could be designed to satisfy the regulations, as long as special attention is given to the transferability requirements. The terms and conditions of the variable annuity products will also be subject to state insurance department approval requirements. The products should further the long-term goal of providing lifetime income options to defined contribution plan participants (particularly as fewer Americans participate in defined benefit plans (i.e., traditional pensions) that provide such lifetime income).
Selecting Insurers
On a quarterly basis, the Manager-selected insurers also submit bids for the guaranteed lifetime income allocations, (for a fixed fee across all participating insurers – which is set as a percentage of the assets that are allocated to the SIP). The Manager completes a review of the bidding process and the participating insurers each quarter in connection with the SIP allocations.
The Opinion confirmed that whether a fiduciary satisfies its fiduciary responsibilities with respect to investments in lifetime income products (and specifically, the selection and monitoring of insurers) continues to depend on the facts and circumstances. Specifically, the Manager must comply with its fiduciary responsibilities under Sections 3(38) and 404(a)(1)(B) of ERISA in connection with the LIS program.
Fiduciaries may qualify for two safe harbors when selecting annuity providers for defined contribution plans, as codified in 29 CFR Section 2550.404a-4 and ERISA Section 404(e). These safe harbors describe the considerations for selecting fiduciaries in accordance with ERISA Section 404(a)(1)(B). The Opinion confirms that the considerations of each of the safe harbors apply to the selection of the Manager as an investment manager. Specifically, the Manager must be prudently selected and monitored as an investment manager. Once selected, the Manager is responsible for the management of the defined contribution plan assets (which includes the selection of insurers).
Looking Forward
The Opinion provides a roadmap for those plan fiduciaries/sponsors and investment managers who would like to provide guaranteed lifetime income investment options within a defined contribution plan’s investment menu. While this guidance furthers the objective of the Trump Administration’s efforts to expand investment options offered to defined contribution plan participants, it also promotes a long-standing bipartisan effort at offering guaranteed lifetime income to retirees.