From the March 2010 issue of Investment Advisor • Subscribe!

March 1, 2010

Income Initiatives; Social Security

Sidebar to the Cover Story "Custom Job"

President Obama's State of the Union address included a number of retirement savings initiatives that he'd like to see enacted: the automatic IRA, an expanded savers credit, updating 401(k) regulations to improve transparency and reliability, as well as using annuities as a way to turn savings into a guaranteed lifetime income.

Robert Reynolds, president and CEO of Putnam Investments, suggests a bipartisan commission to develop an action plan on how to make Social Security solvent by November 3, 2010. Social Security is "the cornerstone of most Americans' retirement," Reynolds said during a speech at the National Institute on Retirement Security (NIRS) policy conference in Washington February 2. The basic solution to saving Social Security, which is "matching Social Security revenues with outflows, is relatively simple," he said, and much easier than solving the healthcare crisis. Reynolds is also pushing hard for Congress and the administration to ensure that provisions of the Pension Protection Act of 2006 (PPA)--which called for auto enrollment, auto escalation, and qualified default options in 401(k) plans--become mandatory. Those provisions are now optional at the plan sponsor level, he says, but studies have shown that those 401(k) plans that have adopted these provisions have shown huge success in getting more people to save.

Other developments in Washington designed to tackle retirement income include a bill introduced last December by Senators Jeff Bingaman (D-New Mexico), Johnny Isakson (R-Georgia), and Herb Kohl (D-Wisconsin) called the Lifetime Income Disclosure Act (S. 2832), which would require 401(k) plan sponsors to inform participating workers of the projected monthly income they could expect at retirement based on their current account balance. Rep. Earl Pomeroy (D-North Dakota) introduced a bill last June called the Retirement Security Needs Lifetime Pay Act (H.R. 2748), which would encourage workers to annuitize some of their retirement savings by providing a 50% tax exclusion for up $10,000 of lifetime annuity payments each year. The bill would exclude from taxes 25% of lifetime income payments from Individual Retirement Accounts (IRAs), qualified plans, and similar employer-sponsored retirement savings plans other than defined benefit plans. The bill also excludes the value of longevity insurance from amounts subject to required minimum distributions and clarifies the taxation of partial annuity payments.

Assistant Labor Secretary Phyllis Borzi said at the NIRS policy conference February 2 in Washington that the Department of Labor (DOL) planned to issue new rules governing investment advice given to 401(k) participants by the end of February.

Reprints Discuss this story
This is where the comments go.