From the November 2008 issue of Investment Advisor • Subscribe!

November 1, 2008

Retirement News & Products

The Department of Labor (DOL) recently issued final rules pertaining to requirements under the Pension Protection Act (PPA) that relate to distribution of 401(k) benefits for missing nonspouse beneficiaries in terminated plans, and selection of annuity providers and cross trading of securities by plans governed by the Employee Retirement Income Security Act (ERISA). The new rule (and a related class exemption) conforms to the PPA by amending existing distribution requirements for terminated defined contribution plans, including abandoned plans, to require rollovers into inherited IRAs for missing nonspouse beneficiaries, according to DOL. As for annuities, DOL is issuing two final rules on selection of annuity providers. One rule limits the application of the "safest available" standard of Interpretive Bulletin 95-1 to defined benefit plans, DOL says, while the other is a final regulation providing guidance, in the form of a safe harbor, for the selection of annuity providers by fiduciaries for benefit distributions from individual account plans. The final rule on cross trading addresses the content of the policies and procedures which must be adopted by an investment manager before engaging in cross trades of securities between clients, including employee benefit plans.

The Investment Company Institute (ICI) and the Securities Industry and Financial Markets Association (SIFMA) are launching a new research initiative that will compile a database to help improve the understanding of investors' use of individual retirement accounts (IRAs)--the largest pool of retirement assets held by Americans. The groups will collect account and demographic data and produce a major research report on IRAs annually, starting in 2009. Member firms of the ICI and SIFMA hold more than 85% of all IRA assets. From 2002 to 2007, IRA assets nearly doubled, from $2.5 trillion to $4.7 trillion, according to ICI and Internal Revenue Service data.

Jackson National Life Insurance Company recently launched LifeGuard Freedom DB, a new guaranteed minimum withdrawal benefit (GMWB) that the company says features an enhanced, innovative death benefit option. Available only with the election of Jackson's LifeGuard Freedom GMWB, LifeGuard Freedom DB allows investors to generate lifetime income while also providing a legacy for their heirs, the company says. The death benefit amount will not decrease, provided withdrawals do not exceed the guaranteed annual limit or minimum required distribution, and investors have the choice of how to distribute wealth among their heirs, Jackson National says. Also, according to the company, LifeGuard Freedom DB offers the same features as LifeGuard Freedom, including the ability to establish a guaranteed lifetime withdrawal stream of up to 7%, with a 7% benefit increase each year for at least the first 10 years of the contract, when no withdrawals are taken in that year.

Fidelity Investments' recently released second annual College Savings Indicator (CSI) found that parents are projected to meet only 21% of the total cost of their children's college education, a three percentage point decrease from last year. The CSI calculates how prepared parents are to pay for future college expenses, currently estimated at $120,000 for today's high school seniors. According to parents surveyed, the current economic conditions are having a direct impact on their ability to save more for college, with 60% citing day-to-day expenses as a barrier, the CSI found. As a result, over one-third (34%) of these parents have either decreased the amount they are saving or have stopped saving completely for their children's future college education, Fidelity says. In addition, 35% of all parents fear they will need to delay retirement to meet college expenses.--Kara P. Stapleton

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