US Department of Labor Greenlights Managed Account-Based Lifetime Income Offering

The US Department of Labor recently issued an advisory opinion clarifying whether a managed account–based lifetime income offering could qualify as a qualified default investment alternative.

In recent years, the retirement industry has had a strong interest in promoting lifetime income solutions to help retirees ensure adequate assets throughout retirement. This industry initiative has been buoyed by regulatory and subregulatory guidance, legislation—and most recently at the urging of the US administration. As an example, the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE 1.0) created a statutory fiduciary safe harbor for selecting annuity providers and added a requirement for including lifetime income disclosures on participant statements.

Since the enactment of SECURE 1.0, recordkeepers, insurers, and asset managers have explored ways to include guaranteed lifetime income benefits and other retirement income features as part of their service offerings, and plan sponsors, investment advisors, and other plan fiduciaries have weighed the different options for their plans. Further, on August 7, 2025, the US administration issued an executive order titled Democratizing Access to Alternative Assets for 401(k) Investors to encourage the use of “alternative assets” in 401(k) plans, defining alternative assets to include “lifetime income strategies.”

On September 23, 2025, the Department of Labor (DOL) took a step forward “to boldly implement President Trump’s Executive Order on Alternative Assets in 401(k) Plans” by answering a key question of whether lifetime income strategies included as part of an asset allocation fund or strategy within an Employee Retirement Income Security Act of 1974 (ERISA)–covered defined contribution plan can qualify as a qualified default investment alternative (QDIA) under ERISA Section 404(c)(5) and the DOL’s implementing regulation at 29 CFR 2550.404c-5(e).

More specifically, Advisory Opinion 2025-04A (the Opinion) addresses whether a particular lifetime income solution using managed account strategies will qualify under the QDIA framework. It affirms that the particular solution—which incorporates annuities that are not designated investment options under the plan—could serve as a QDIA. The Opinion was also drafted to provide some assurance for similar lifetime income strategy programs and may also signal further DOL support for lifetime income offerings.

ADVISORY OPINION 2025-04A – LIFETIME INCOME STRATEGY PROGRAM

On September 23, 2025, the DOL issued the Opinion to address a global asset management firm’s offering of an investment management service as a part of a lifetime income strategy program with a guaranteed lifetime withdrawal benefit (GLWB) under which participants can receive a guaranteed lifetime income stream in retirement. The Opinion addressed whether the particular program could function as a QDIA.

At a high level, the program described in the Opinion is intended to be offered in defined contribution plans as both an investment option available to participants and as a “managed account” QDIA, managed by an investment management firm as an ERISA fiduciary and as an “investment manager” as defined under Section 3(38) of ERISA.

The investment manager engages in quarterly oversight of the insurers (such as insurer credit quality) and evaluates the reasonableness of the guarantees provided. The managed account program constructs participant-specific allocations from the plan’s existing lineup that are designed to de-risk with age in order to build fixed allocation portfolios. As participants age, the managed account program would allocate a higher portion of the participant’s allocation to fixed income investments.

A defining element of the offering is that it includes a guaranteed lifetime income component that provides insurance guarantees of lifetime income withdrawals during retirement. This component is funded by a separate portfolio invested in variable annuity contracts issued by multiple insurers (Annuity Contract Portfolio).

A key feature of the Annuity Contract Portfolio is that it will provide retirement income that a participant may annually withdraw from the plan for life (i.e., Annual Withdrawal Amount). Allocations to the investment in the Annuity Contract Portfolio begin when a participant reaches age 50 (or another age set by the plan fiduciary) and continue until two years before the participant’s designated retirement age (or a default age set by the plan, absent an affirmative election by the participant).

Any participants defaulted into the program will receive a special reminder notice shortly before their first allocation to the Annuity Contract Portfolio (in addition to the standard annual QDIA notice). Participants are allowed to transfer their account balance in the program to any other investment options offered under the plan or withdraw amounts from the Annuity Contract Portfolio at any time without any termination fees or surrender charges or penalties.

The program also includes ongoing participant education explaining how guarantees operate.

QDIA STATUS

In the Opinion, the DOL concludes that the structure of the program, as described in the Opinion, can fit within the QDIA regulation (29 CFR 2550.404c-5). The DOL notes that an important component as to the ability of the offering to satisfy the QDIA regulation is that the product still preserves the liquidity and transferability rights of investors because participants are able to withdraw amounts from the program (including the allocation to the annuity contracts).

The DOL emphasized that the use of variable annuity contracts within lifetime income strategies does not, by itself, disqualify an arrangement from QDIA status, including even variable annuity contracts offered through a lifetime income strategy in an investment management (managed account) service. In support of this, the DOL emphasizes what it sees as the flexibility built into the QDIA regulation, which was intended to accommodate future innovations and developments in the retirement space so long as they are diversified, transferable, and meet the other requirements of the QDIA regulation.

The Opinion does note that the analysis of whether another lifetime income strategy or any other investment alternative satisfies the conditions of a QDIA will be fact specific. Plan sponsors and fiduciaries will need to review the specific features and characteristics of any guaranteed income product that they consider.

FIDUCIARY SAFE HARBORS

With respect to the asset manager’s fiduciary responsibilities in selecting and monitoring of insurers in the program at issue, the Opinion points to two recognized safe harbors for selecting annuity providers for defined contribution plans—the DOL’s 2008 annuity-selection regulation at 29 CFR §2550.404a-4 and the statutory safe harbor enacted in Section 404(e) of ERISA by SECURE 1.0. The Opinion concludes that both would be available for this offering to satisfy fiduciary responsibility.

It should be noted that while the DOL recently sought to remove the 2008 regulatory safe harbor as superseded by the SECURE 1.0 statutory safe harbor, it withdrew the removal notice following significant adverse comments, so that the 2008 safe harbor continues to be available.

CONSIDERATIONS FOR PLAN SPONSORS AND FIDUCIARIES

For plan fiduciaries evaluating lifetime income solutions, the Opinion provides some helpful reassurance around the selection and monitoring of lifetime income strategies. The Opinion confirms that a professionally managed arrangement embedding guaranteed income may serve as a QDIA—including an offering where annuities are used—if the other regulatory conditions of a QDIA are met. This provides further support for plans to offer lifetime income strategies, including as part of QDIAs.

The Opinion explains the need for prudently selecting and appropriately monitoring any delegation to a Section 3(38) investment manager but then also explains that after the 3(38) investment manager is appointed, the investment manager is responsible for the prudent management of the defined contribution plan’s assets and selection of the insurers and, assuming the appointing fiduciary appropriately discharges its selection and monitoring duties, the appointing fiduciary “will not be liable for any acts or omissions of the investment manager, except for any potential co-fiduciary liability under ERISA section 405(a).”

We also recommend that any lifetime income strategy be appropriately documented, that where intended insurer selection processes be designed to comply with available fiduciary safe harbors, and that procedural documents, such as committee meeting minutes, reflect any important deliberations and key decisions around fees, guarantees, and other features of the strategy.

HOW WE CAN HELP

Morgan Lewis regularly advises plan sponsors, fiduciaries, and service providers on navigating the evolving legal landscape surrounding ERISA compliance. Please contact the authors of this LawFlash or your regular Morgan Lewis contact with any questions about the Opinion or the implementation of lifetime income strategies in general.