As beleaguered workers with little in the way of retirement savings increasingly look for a means of guaranteeing income during retirement, a retirement industry-sponsored white paper has made a pitch for including annuity products in 401(k) plans.
The paper, “Retirement Income Solutions: A Guide for Plan Sponsors,” put out by the Defined Contribution Institutional Investment Association (DCIIA), lays out the industry’s case for including annuity products in employees’ retirement plans.
It also outlines policymaker support for guaranteed income streams, looks at case studies from companies trying various strategies to provide employees with a range of income-producing products and offers a range of options available to plan sponsors considering changes to the plans they offer that can provide income to participants upon retirement.
The policy isn’t without its critics, and the potential for annuities within retirement plans could hit a substantial snag once the Department of Labor’s new fiduciary rule goes into effect.
But the quest for retirement income has led to the exploration of lifetime income solutions by both DOL and the Department of the Treasury.
Here’s a look at five initiatives by DOL and Treasury, cited by the paper, that could lead to a proliferation of annuities within 401(k) plans.
1. February 2012: Treasury issues guidance package on lifetime income
Treasury issued a guidance package on lifetime income that included proposed regulations on longevity annuities and partial annuitization in plans and revenue rulings to clarify spousal protection rules for lifetime income solutions.
2. May 2013: DOL releases Advance Notice of Proposed Rulemaking on communicating account balances
DOL released an Advance Notice of Proposed Rulemaking (ANPRM) to request feedback about how to communicate DC plan account balances as a lifetime income stream on participants’ benefit statements.
This request included an example and an online calculator.
According to the DOL’s regulatory agenda, this initiative remains a priority.
3. July 2014: Treasury issues final regulations on QLACs
Treasury issued final regulations regarding qualified longevity annuity contracts (QLACs), making them accessible to the DC and individual retirement account (IRA) markets.
4. October 2014: Treasury issues Notice 2014-66 to clarify tax law compliance
Treasury issued Notice 2014-66, which clarified certain questions pertaining to tax law compliance (e.g., Benefits, Rights and Features) when offering annuities within target-date fund structures.
As a companion piece, DOL, in an intra-agency letter, further clarified that plan sponsors may use a 3(38) investment manager [a discretionary investment advisor that can serve as an independent fiduciary through a delegation of authority from the plan’s named fiduciary] to assist in the selection of an insurance product and clarified the identity of the investment option as a QDIA (thus with attendant fiduciary safe harbor).
5. July 2015: DOL issues Field Assistance Bulletin 2015-02 to clarify fiduciary duties
DOL issued Field Assistance Bulletin 2015-02 to help clarify for plan fiduciaries how to exercise fiduciary responsibilities in selecting and monitoring annuities in plans.
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