At the beginning of February, the Department of Labor and the Treasury Department issued a request for information (RFI) on “Lifetime Income Options for Participants and Beneficiaries in Retirement Plans.” Rising concern over the move away from defined benefit plans to defined contribution plans, with a resulting lack of guaranteed income in retirement years to retirees, and the increasing reliance of those retirees on lump sum distributions–also resulting in a lack of sufficient funds to last throughout retirement–gave rise to the request, along with “efforts to promote retirement security for the American public.”
Two GAO reports, issued in 2007 and 2009, as well as a series of ERISA Advisory Council reports, raised concerns about a variety of issues faced by retirees.
These issues played a large part in the DOL/Treasury RFI. Through a series of 24 questions that sought to discover, among other queries, which lifetime income options, if any, are currently offered to retirees, why so few take advantage of them rather than lump sums (“the vast majority” choose lump sums), and how a lifetime income option might be incorporated into plans to protect the future financial well-being of retirees, the two Departments asked for input from plan providers and participants, employers and other plan sponsors, members of the financial community, and the public.
Nationwide’s Answer: 401KIncome
One response came from Nationwide in the form of a proposal called 401KIncome, undwer which annuities would be incorporated into 401(k) plans to provide an element of guaranteed income in a vehicle that otherwise offers little predictability and requires substantial financial decision-making skills on the part of the participant.
401KIncome, as laid out in Nationwide’s proposal, makes a number of recommendations. One of these is to improve employer participation in matching funds by urging the offering of a tax credit, rather than a tax deduction, for any employer contribution “used to purchase a guaranteed income stream in the form of a fixed or longevity annuity. . . .” It points out that a credit will be more beneficial than a deduction to smaller companies, which are taxed at lower rates.