Unsafe Harbor? Deregulation and the Limit of the Secure Act Safe Harbor for Selection of Lifetime Income Provider

On January 31, 2025, President Trump signed Executive Order 14192, titled“ Unleashing Prosperity Through Deregulation.” Its stated purpose was to encourage the reduction of private expenditure and alleviate unnecessary regulatory burdens. The executive order establishes a regulatory cap for fiscal year 2025 pursuant to which agencies are directed to identify at least 10 existing regulations to be repealed for every newly proposed rule.

With the administration’s deregulatory agenda now in full swing, the Department of Labor has targeted various regulations and rulings it has termed “redundant” or “confusing.” In addition to the many other subagencies taking action on different rules, the DOL Employee Benefits Security Administration issued a series of three “direct final rulemakings,” which would remove various regulations and interpretive bulletins from the Code of Federal Regulations, including:

• 29 C.F.R. § 2550.401c-1, which applies only to certain insurance policies or contracts issued to (or on behalf of) employee benefit plans on or before December 31, 1998. In the DOL’s view, “given the unlikelihood that any of these policies or contracts remain in effect … the regulation is no longer needed and, if left on the books, could add confusion and unnecessary complexity.”
• 29 C.F.R. §§ 2509.75-2, 2509.75-6, and 2509.75-10, which are interpretive bulletins issued shortly after the enactment of the Employee Retirement Income Security Act (ERISA). Because of subsequent guidance issued by the DOL and the effect of Reorganization Plan No. 4 of 1978 (dividing ERISA interpretive and enforcement authority between the DOL and the Treasury), the DOL’s view is that “the interpretive bulletins are no longer needed, and if left on the books, add potential confusion and unnecessary complexity.”
• 29 C.F.R. § 2550.404a-4, a fiduciary safe harbor “for the selection of annuity providers for the purpose of benefit distributions from individual account retirement plans,” which, according to the DOL, “became unnecessary in 2019 when Congress amended ERISA to add a more streamlined fiduciary safe harbor covering the same activity.” The DOL refers to the former as the “regulatory safe harbor” and the latter as the “statutory safe harbor.”

Direct final rulemaking is a variation of the Administrative Procedure Act’s general notice-and-comment rulemaking process. It is a pared-down rulemaking process meant for the issuance of noncontroversial rules. After an agency publishes the rule in the Federal Register, it becomes final (usually after 60 days) unless significant adverse comments are received by a certain date (usually 30 days after it is published). If significant adverse comments are received, the agency must respond, and the rule will not immediately go into effect.

While all three rule removals deserve analysis, given their procedural posture, this article focuses on the removal of 29 C.F.R. § 2550.404a-4. By way of background, the Pension Protection Act of 2006 directed the DOL to issue regulations that would establish a safe harbor for the selection of annuity providers for individual account plans. The regulatory safe harbor provided a number of conditions, including those related to the financial capability of the insurance company. In 2019, as part of the Secure Act, Congress added a new statutory safe harbor that follows the regulatory safe harbor but permits a fiduciary to rely on a statement by the insurance company as to its financial capability, rather than determining financial capability on its own. The preamble to the direct final rule explains that “[a]lthough the statutory safe harbor did not technically nullify or repeal the regulatory safe harbor, its existence offers an unnecessary and inefficient alternative and may inadvertently be a trap for the unwary.”

In the rush to deregulate, the DOL may have inadvertently created a pitfall for unwary plan sponsors choosing annuities for their plans. On a closer read, the differences between the scope of the two safe harbors may in fact be significant. While the preamble is correct in explaining that the statutory safe harbor presents an easier alternative for the selection of an insurance company, the regulatory safe harbor appears to be broader in scope as it covers both the selection of the insurer and the selection of the annuity contract itself.

The statutory safe harbor is codified in ERISA section 404(e) and begins with the following statement:

(e) Safe harbor for annuity selection

(1) In general. With respect to the selection of an insurer for a guaranteed retirement income contract, the requirements of subsection (a)(1)(B) will be deemed to be satisfied if ….

In contrast, the regulatory safe harbor in subsection (a)(1) provides:

This section establishes a safe harbor for satisfying the fiduciary duties under section 404(a)(1)(B) of the Employee Retirement Income Security Act of 1974 … in selecting an annuity provider and contract for benefit distributions from an individual account plan.

Plan fiduciaries may see value in utilizing the regulatory safe harbor simply for its explicitly extended scope that includes annuity contract selection. In divergence from the purpose of both safe harbors, the removal of the regulatory safe harbor may create a gap that could have the effect of chilling annuity sales going forward.

To avoid the direct final regulations from automatically taking effect September 6, 2025, significant adverse comments must be submitted to the DOL by July 31, 2025. Significant adverse comments are “ones which oppose the rule and raise, alone or in combination, a serious enough issue related to each of the independent grounds for the rule that a substantive response is required.” As noted above, if significant adverse comments are received, the agency must respond, and the rule will not immediately go into effect.

UPDATE (August 12, 2025): The Department received significant adverse comments and, therefore, has withdrawn the DFR.