DOL advisory opinion on lifetime income QDIA

On September 23, 2025, the Department of Labor released Advisory Opinion 2025-04A providing guidance as to:

• Whether the AllianceBernstein’s (AB) Lifetime Income Strategy (LIS) program could be part of a qualified default investment alternative (QDIA) under DOL’s QDIA regulation.

• AB’s fiduciary responsibilities with respect to the selection and monitoring of insurers providing guarantees to LIS or a similar program

In this article we review the Advisory Opinion. As DOL found that AB’s LIS program did satisfy the QDIA rule, most of our discussion of that issue consists of a review of how that program works.

We begin with a brief background on QDIAs.

QDIAs generally

Oversimplifying, ERISA section 404(c) provides that, in a DC plan meeting certain requirements, if a participant “exercises control” over her account (e.g., chooses investments from a fund menu), then plan fiduciaries are not responsible for the consequences of those choices.

Under a DOL regulation, where a participant does not make an affirmative election about how her account is to be invested, plan fiduciaries still get 404(c) treatment if assets in the account are defaulted to a qualified default investment alternative (QDIA). Broadly, there are three types of QDIAs: target date funds; balanced funds; and managed accounts.

The AB lifetime income QDIA

The LIS is part of an AB managed account program. Under that program, AB functions as an ERISA section 3(38) investment manager, allocating participant assets to funds in the plan’s fund menu based on “an asset allocation strategy unique to [each] participant.”

Under the LIS, a participant’s assets are gradually allocated to the a “Secure Income Portfolio,” beginning at age 50 (“or such other age selected by a plan fiduciary”), and ending two years before retirement age. Under the LIS, participants may specify a percentage of their account to be allocated to the SIP; if they don’t do so, there is a default allocation rate (selected by the plan sponsor). Allocations to the SIP are made quarterly until the selected percentage of income protection is reached.

Financing/fees

DOL describes LIS financing/fees as follows:

The LIS program offers guaranteed lifetime income to participants through the funding of a separate portfolio (the Secure Income Portfolio, or the SIP) which is offered through a variable annuity contract. …

Each quarter, multiple AB-selected insurers submit bids to provide a guaranteed lifetime income stream based upon the total allocation amounts for that quarter. The fee for the insurance guarantee is expressed as a set percentage of the assets allocated to the SIP. This asset-based fee is fixed across all participating insurers and may not be changed. AB uses an objective formula to allocate amounts across insurers with a goal of maintaining insurer diversification while maximizing the amount of guaranteed income for plan participants. This bidding process is repeated on a quarterly basis as assets are allocated to the SIP, allowing for a “dollar-cost averaging” effect with regard to the insurance guarantees provided. … Additionally, although the SIP is offered through a variable annuity contract, there are no fees charged to participants for features that will not be used under the LIS program, such as mortality and expense charges.

Because (as discussed below under “QDIA requirements”) participants must be provided no-fee withdrawals from their SIP assets, the insurance guarantees are structured as guaranteed lifetime withdrawal benefit (GLWB) contracts.

Withdrawals

AB calculates the amount the participant may annually withdraw from the plan based upon the insurance guarantees and the participant’s assets allocated to the SIP. This “Annual Withdrawal Amount” is, effectively, the participant’s guaranteed lifetime income.

AB represents that, because of the carrier guarantee, LIS asset allocations have a “higher growth exposure … than that reflected in a benchmark for target date investments,” and, to the extent SIP returns increase the account value above its “Income Base” (participant contributions plus transfers into the SIP), the Annual Withdrawal Amount is increased.

On termination of employment/retirement, “the GLWB contracts at each insurer may be rolled over into the respective insurer’s IRAs.”

QDIA requirements

QDIAs must satisfy a set of general conditions. The program outlined in the Advisory Opinion includes the following features satisfying those conditions:

Notice: Before defaulted into the LIS program, participants receive a notice meeting the requirements of the QDIA regulation, “with a complete description of the LIS program including the SIP and GLWB components.”

90-day waiting period: No allocation of funds is made to the SIP for 90 days after the first default investment in the LIS.

No restrictions/fees on withdrawals: Participants may transfer their account balance from the LIS to other plan options, or withdraw amounts from the SIP, at any time, “without a termination or liquidity fee.” Withdrawals in excess of the Annual Withdrawal Amount will trigger a reduction in guarantees and the Annual Withdrawal Amount.

AB’s selection of carriers – fiduciary standards

AB described its process for picking carriers as follows:

AB selects insurers for participation in the LIS program by first sending a request for proposals seeking information about the insurers’ business (e.g., their lines of business and financials), their ability to offer guarantees, and the cost of such guarantees. AB selects the insurers to include in the LIS program based on the insurers’ claims paying ability and ability to provide quarterly guaranteed rates based on a fixed insurance fee. On a quarterly basis, AB reviews each insurer’s credit ratings and the guaranteed rates currently provided. AB also consults with an independent insurance research expert to assess the reasonableness of the guarantees being provided given the fixed insurance fee and confirm each insurer’s ability to continue to meet their obligations.

After noting that AB will acknowledge that it is the fiduciary responsible for the selection of carriers providing guarantees under the LIS/SIP, DOL referred to two available fiduciary safe harbors for standards applicable to their selection: (1) DOL regulation 2550-404a-4, which provides a set of general requirements (e.g., the fiduciary “Engages in an objective, thorough and analytical search …. Appropriately considers information sufficient to assess the ability of the annuity provider to make all future payments …, etc.”); and (2) ERISA section 404(e), which takes the same “general guidance” approach.

Finally, we note that GLWB contracts are complex and, given the guarantee-plus-no-fee withdrawal they provide, necessarily have relatively high fees. In this regard, DOL states: “The Department offers no opinion in this letter on the reasonableness of the fees associated with the LIS program, including the fees and cost of the income protection offered by the GLWBs.”

Sponsor fiduciary responsibility

While noting that AB, as a 3(38) investment manager/fiduciary, will be “responsible for the prudent management of the defined contribution plan’s assets and selection of the insurers,” sponsor fiduciaries must nevertheless “prudently select AB … and appropriately monitor the selection at reasonable intervals to assure the prudence of maintaining the appointment.”

To repeat: these are complicated arrangements (with relatively high fees); and sponsor fiduciaries have a duty prudence with respect to the selection and monitoring of the appointment of a 3(38) fiduciary. When considering an arrangement like this, sponsor fiduciaries will want to comprehensively review it with counsel and (conceivably) with other experts.

* * *

The Advisory Opinion is probably most interesting for the approach of “wrapping” a lifetime income option into a QDIA managed account – and DOL’s agreement that, with (as noted) applicable QDIA conditions satisfied (notice, no-fee withdrawal, etc.), that sort of QDIA may include an insurance product (a GLWB variable annuity guarantee).

Finally, we note that this guidance (in part) implements President Trump’s Executive Order on “Democratizing Access to Alternative Assets for 401(k) Investors,” which instructed DOL to issue guidance clarifying the fiduciary treatment of the inclusion of “lifetime income investment strategies including longevity risk-sharing pools” in “asset allocation funds.”

We will continue to follow this issue.