DoL Guidance Makes it Easier for Plan Sponsors to Offer Annuities as a 401k Plan Distribution Option

NEW YORK, NY, January 13, 2003 – In an Advisory Opinion addressed to MetLife, the Department of Labor's Employee Benefits Security Administration (PWBA) has clarified how the existing guidance on the selection of an annuity provider applies to defined contribution (DC) plans. Prior to this Opinion, there was confusion among plan sponsors about the manner in which the "safest available annuity" guidance (Interpretive Bulletin 95-1) applied to DC plans. The Opinion should make it easier for plan sponsors to offer annuities as a 401k plan distribution option.

"Plan sponsors recognize that offering annuities as a distribution option truly completes the 401k plan and will have a direct impact on their retirees' financial security in retirement," said Elaine Stevenson, vice president, MetLife Retirement & Savings. "As baby boomers approach retirement, many of whom will rely almost exclusively on their 401k nest egg, the ability to purchase an annuity to provide guaranteed income in retirement will become critical."

Advisory Opinion Letter 2002-14A provides that the general fiduciary principles of the IB apply to both defined benefit plans and defined contribution plans. However, the letter makes a number of significant distinctions and clarifications:

• As stated in the DOL's press release, the Advisory Opinion states that defined contribution plan fiduciaries may consider costs in evaluating competing annuity products. Lower costs often mean increased benefits for participants in DC plans. As expected, the Advisory Opinion states that lower costs cannot justify the purchase of unsafe annuities.
• With respect to the hiring of independent experts, the Opinion addresses two situations raised in IB 95-1: (1) the use of an independent expert when the fiduciary lacks the necessary expertise to evaluate the claims-paying ability and creditworthiness of the annuity provider; and, (2) reversion situations affecting the plan sponsor (generally involving surplus assets). With regard to the former situation, the Opinion states that when the fiduciary has a sufficient level of expertise or knowledge to "meaningfully evaluate" the claims-paying ability and creditworthiness of the annuity provider, the fiduciary is not required to engage a qualified, independent expert. With regard to the hiring of an expert in a reversion situation, the Opinion recognizes that -- since defined contribution plan terminations do not involve reversions -- an independent expert need not be hired.
• When coverage by state guaranty associations is applicable, the fiduciary should determine whether the provider and annuity are covered by state guarantees and the extent of such guarantees in terms of amounts and individuals covered (e.g., residents, as opposed to non-residents, of a state). Special state guarantee fund expertise should not be necessary: The Opinion states that publicly available, easily accessible information should enable the fiduciary to make these determinations. With regard to the Advisory Opinion Stevenson added, "The Opinion eases the way for plan sponsors to offer annuities in defined contribution plans. In the past, plan sponsors may have wanted to help their retirees by providing an annuity option but were reluctant to do so because their fiduciary responsibilities in this area were unclear. The DOL's opinion should increase their comfort level."

MetLife Retirement & Savings delivers integrated retirement programs, investment management solutions for defined contribution and defined benefit plans, and innovative retirement income security products for individuals. MetLife, a subsidiary of MetLife, Inc. (NYSE: MET), is a leading provider of insurance and other financial services to individual and institutional customers. The MetLife companies serve approximately 12 million individuals in the U.S. and companies and institutions with 33 million employees and members. MetLife also has international insurance operations in 13 countries. For more information about MetLife, please visit the company's Web site at www.metlife.com.

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