U.S. Department of Labor Confirms That Lifetime Income Can Be Part of a Qualified Default Investment Alternative

The U.S. Department of Labor (DOL) recently published an advisory opinion, Advisory Opinion 2025-04A (the Opinion), expressing its view that an investment management service with a lifetime income solution can constitute a qualified default investment alternative (QDIA) under the Employee Retirement Income Security Act of 1974 (ERISA). The Opinion also explains how a fiduciary can satisfy the ERISA fiduciary duty requirements when selecting and monitoring an insurance company to provide the lifetime income.

Description of the Investment Management Service
The investment management service discussed in the Opinion (LIS Program) is offered by AllianceBernstein L.P. (AB) and contains a guaranteed lifetime withdrawal benefit that provides a guaranteed lifetime stream of income in retirement. The LIS Program is designed as an investment option for participant-directed defined contribution plans such as 401(k) plans. 

The LIS Program uses a plan’s existing investment options to create a portfolio appropriate for each participant and allocates a portion of the participant’s account balance to a secure income portfolio (SIP) that provides guaranteed lifetime income through a variable annuity contract. The LIS Program allocates amounts from a participant’s account to the SIP beginning when the participant attains age 50 (or other age selected by the plan fiduciary) and ending two years before the participant’s designated retirement age. Participants can select the amount of their plan account to be allocated to the SIP or be defaulted into a percentage set by the plan fiduciary. Participants also can transfer their account balance in the LIS Program to other plan investment options and withdraw from the SIP at any time. AB, acting as a fiduciary under ERISA, selects the insurers to provide the variable annuity contract[s] in the LIS Program.

Qualification as a QDIA Under ERISA
ERISA provides that in the absence of a participant’s affirmative investment election, plan fiduciaries will not be liable for any losses relating to the investment of a participant’s account in a plan investment option that qualifies as a QDIA, provided that certain notice requirements are satisfied. However, plan fiduciaries are responsible for the prudent selection and monitoring of the QDIA. 

A DOL regulation under ERISA (QDIA regulation) describes the types of investment options that constitute a QDIA and includes an investment management service with respect to which a fiduciary allocates the assets of a participant's plan account among the investment options available under the plan in order to achieve varying degrees of long-term appreciation and capital preservation based on the participant's age, target retirement date, or life expectancy. Other QDIAs include target date funds and balanced funds that meet certain conditions. 

Although the DOL previously clarified that products and portfolios offered through variable annuity and similar contracts, as well as the availability of annuity purchase rights, death benefit guarantees, investment guarantees, or other features common to variable annuity contracts will not themselves affect the status of a fund, product, or portfolio as a QDIA, the DOL had not previously addressed whether an investment option with lifetime income features similar to the one in the LIS Program could constitute a QDIA.

The Opinion explains that the DOL did not intend the language in the QDIA regulation to preclude the use of lifetime income strategies in a QDIA. The Opinion confirmed that if the LIS Program otherwise satisfies the regulatory requirements of the QDIA regulation (e.g., transferability, participant notice, diversification, and use of generally accepted investment theories), the LIS Program could constitute a QDIA.

Required Fiduciary Responsibilities Under ERISA 404(a)(1)(B)
The Opinion also addresses how a fiduciary can satisfy its duty to act prudently under ERISA when selecting and monitoring insurance companies that will provide the lifetime income. In the Opinion, the DOL references two existing safe harbors for fiduciaries selecting annuity providers for a defined contribution plan. One of the safe harbors is contained in a regulation issued by the DOL, and the other is a statutory safe harbor set forth in ERISA. The Opinion states that if a fiduciary complies with the conditions of one of these safe harbors, it would satisfy its fiduciary duties under ERISA with respect to the selection and monitoring of the insurance companies for this purpose. 

Takeaways
QDIAs with various types of lifetime income have been available to plans for several years. While it is helpful to have the DOL clarify this conclusion, many lawyers in the industry have already determined that including lifetime income in an investment option that otherwise meets the definition of QDIA will not impact its qualification as a QDIA. It is also helpful to have the DOL confirm that a fiduciary that meets one of the safe harbors applicable to selecting an insurance company to provide annuities in a defined contribution plan will satisfy such fiduciary’s duties under ERISA.