DOL Liquidity Regulations Would Boost 401(k) In-Plan Annuities

An effort to open employer-sponsored retirement plans to more lifetime income options will rely largely on adjusting 401(k) asset accessibility standards the Department of Labor is positioned to address.

There has been bipartisan support in Congress for expanding use of products like in-plan annuities. President Donald Trump’s August 2025 alternative investment executive order requested that DOL boost “lifetime income investment strategies.”

By tackling liquidity requirements through regulation, the DOL’s Employee Benefits Security Administration could supercharge the push to make these products qualified default investment alternatives (QDIAs), benefits attorneys and insurers said.

Addressing liquidity, as well as related litigation risk and fiduciary responsibilities, could allow proliferation of the in-plan annuities advocates say would fill a looming retirement gap with continual payouts for savers who largely lack access to traditional pensions.

“There’s just a lack of clear identifiable rules specifically for defined contribution plans to incorporate these products,” said Emily Micale, director of federal regulatory affairs at Insured Retirement Institute, which advocates for life insurers.

Policies and regulations have long focused on getting workers to save for retirement, causing the issue of steady income during retirement to lag behind, Micale said.

Even as advocates see annuities as providing a retirement income floor, critics have raised concerns about their transparency and the costs to employers and plan participants.

Liquidity Requirements

LIMRA, a life insurance marketing and research association, said in a 2023 report roughly 90% of defined contribution plans offer no in-plan option for lifetime guaranteed income.

Retirement plan liquidity requirements can make it difficult to include annuities, some of which cannot quickly be converted into cash. Participants in a QDIA must be able to transfer funds to any other available investment alternative at least quarterly.

“It’s really part of the larger debate about what a 401(k) is. Do we need 100% liquidity all the time? Should we be prioritizing liquidity over everything else?” said Michael Kreps, partner at Groom Law Group, who received a 2025 DOL advisory opinion on an AllianceBernstein LP lifetime income program.

IRI suggested the DOL put forward a regulation that recognizes the income guarantees associated with lifetime income products offset concerns about reduced liquidity.

The DOL could also provide greater fiduciary clarity on lifetime income and annuity products, Micale said, citing concerns over the way the current annuity safe harbor is written because it applies to the provider, but not the product specifically.

“Our members continue to see this hesitation in the market with their partners, because these plan fiduciaries still remain a bit concerned about selecting insured retirement income products under what they perceive as an uncertain and highly sensitive regulatory and legal environment,” Micale said.

Annuities are subject to multiple regulatory frameworks depending on if they are fixed or variable, including regulations under the Employee Retirement Income Security Act, tax rules, and state insurance rules. The DOL could streamline those regulations to provide greater clarity, Micale said.

A DOL spokesperson said the forthcoming proposal responding to Trump’s alternative investments order would clarify fiduciary duties when making alternative assets available to savers, including lifetime income strategies.

“We have a long history of supporting lifetime income, and the Department remains committed to considering ways to facilitate retirement investment in lifetime income strategies and other alternative assets,” the spokesperson said.

The SECURE and SECURE 2.0 Acts led to some regulatory changes that encouraged in-plan annuities. SECURE 2.0 prevents certain qualified annuity income from violating required minimum distribution tests.

Litigation Risk

Benefits attorneys said there is a lingering fear among employers and fiduciaries without clearer guidelines.

“It just really comes down to am I going to get sued, or is the government going to yell at me,” Kreps said. “The government can go a long way in saying, we’re not going to yell at you, in fact, we want you to build lifetime income into your plans, guaranteed or not guaranteed.”

Plan sponsors can currently look to the AllianceBernstein advisory opinion that confirmed the asset manager’s guaranteed income investment program meets requirements to automatically enroll new 401(k) participants and could be treated as a QDIA.

The EBSA opinion said fiduciaries can qualify for two safe harbors when choosing annuity providers for defined contribution plans. As long as the plan’s named fiduciary prudently selects and periodically monitors AllianceBernstein, the firm as investment manager would be legally responsible for selecting insurers and managing assets.

Jennifer Neilsson, a partner at King & Spalding LLP, called the advisory opinion a “helpful roadmap for the industry” when considering whether lifetime income can be included as part of a QDIA.

“Because the DOL is expressing its viewpoint in advisory opinions, ERISA practitioners feel comfortable that the DOL will not find a regulatory issue if they comply with the guidance,” she said.

Congress could reduce litigation risk by passing legislation to change ERISA pleading standards, Neilsson said. She cited a push among some advocates to make it more difficult for a plaintiff to survive a motion to dismiss.

Lawmakers could also require defined contribution plans to provide a lifetime income option to participants, or change liquidity requirements of QDIAs.

The Lifetime Income for Employees Act would allow employers to provide annuities as a default investment option and would direct the DOL to amend QDIA safe harbor regulations.

The House Education and Workforce Committee held a hearing in January that included discussion of lifetime income options.

Nari Rhee, director of the Retirement Security Program at the University of California at Berkeley, cautioned in her testimony that defaulting participants into long-term contracts required a higher level of fiduciary care than typical target-date funds.

She also emphasized the need for transparency and education around lifetime income products, which she said are often complex and range widely in cost.

“The need to generate predictable income from 401(k)s is a legitimate, longstanding concern for plan sponsors and policymakers,” Rhee testified. “But given the complexity of annuity products, workers need robust guardrails against unnecessary costs and risks.”