Fiduciary Responsibilities with In-plan Annuities
As their name suggests, in-plan annuities can be part of 401(k) plans, thus coming under the fiduciary oversight obligations. Offering in-plan annuities requires more responsibility and perhaps complexity on the plan administrator’s part, but represents a serious effort on the employer’s part to safeguard a portion of retirees’ income.
Alternatively, out-of-plan annuities are made available to plan participants only when they retire. In this scenario, the plan provides retirees access to an annuity shopping mechanism, not unlike a public health care insurance exchange, and the transaction is between the retiree and the insurance carrier issuing the annuity. The purchase of an out-of-plan annuity is not a taxable event, as it’s similar to an IRA rollover. Here, the plan sponsor is responsible for the administrative processes to facilitate the rollover transactions. According to a report by the IRIC, out-of-plan annuities limit the employer’s responsibility to ensuring that the annuity purchasing service provides retired participants with accurate information to navigate the process.
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