Recently, the Department of Labor (DOL) issued an advisory opinion letter to AllianceBernstein permitting the AllianceBernstein Lifetime Income Strategy program for use as a qualified default investment alternative (QDIA) in 401(k) plans. While this ruling permitting an investment fund with a lifetime income component to qualify as a QDIA is not surprising based on the DOL’s QDIA regulation, it is still the first ruling specifically approving such a fund as a QDIA. Significantly, it only applies to the AllianceBernstein offering.
It is important for plan fiduciaries to be mindful that a plan’s selection of a QDIA must satisfy the QDIA regulation, so selection of a fund offering that is more unique than the typical target date fund may be challenged for not satisfying the regulation’s requirements absent specific or broad-based approval by the DOL. In addition, ERISA’s statutory fiduciary duties of loyalty and prudence associated with the selection and monitoring of 401(k) investment options also apply to the evaluation of whether an investment fund with a lifetime income component is an appropriate addition to a 401(k) plan’s investment menu, the same way they apply to any investment option or potential investment option.
Even if the DOL issues more broad-based guidance, plan fiduciaries and their investment advisors may still conclude that available funds with a lifetime income are not an appropriate addition to the 401(k) plan’s investment menu. Potential ERISA fiduciary concerns raised by lifetime income options include: (i) high fees, (ii) lack of liquidity, (iii) recordkeeping and custodian challenges, (iv) regulatory uncertainty, and (v) litigation risks.
