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The 401(k), version 3.0

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If you’re a plan sponsor hoping for more guidance from the government on retirement issues, expect a surge real soon.

New rules are coming on cash-balance pension planshybrid plans and lifetime income projections, according to Mark Iwry, Treasury’s deputy assistant secretary on retirement and health policy.

Speaking Tuesday at the Plan Sponsor Council of America meeting in Aventura, Fla., Iwry indicated the coming guidelines are aimed at helping “reconstruct” how income security in retirement can be achieved. 

“It’s time to move to a more robust use of behavioral strategies,” he said. “Call it 401(k) 3.0.” 

Taking defined contribution plans to the next level, he said, can begin by auto-enrolling any worker, rather than just new hires, who haven’t elected to sit on the sidelines. Bumping up deferral rates to 5 percent to 6 percent, rather than 3 percent, is another option, he said, as well as raising contribution levels by 1 percent to 2 percent a year.

Many large employers already have taken this approach but few smaller companies have.

In part, that’s because smaller employers with lower-income workforces often fear leaving their employees with too little in their paychecks. 

Timing enrollment or escalating deferrals to coincide with a pay raise might do the trick, Iwry said. Employers also can help workers save more by applying unused sick pay dollars to their 401(k) accounts and eliminating enrollment waiting periods. 

These tactics are not, of course, new to the DC world. But they do underscore that employers don’t need to wait for Congress to pass new laws or regulators to issue new rules to help employees achieve a more secure future. 

It doesn’t hurt, however, when regulators do issue new rules that can help.

The Treasury did some of that a bit earlier this summer when it issued rules on longevity annuities that could help protect retirees from outliving their retirement savings.

For many, increased life expectancy means having to make sure retirement savings last more than two decades. The final rules on longevity annuities make the deferred-income option more available to 401(k) and IRA markets. Longevity annuities shelter a portion of retirement savings and distribute the income at an advanced age, typically 80 or 85.

“It’s all about protecting the tail risk,” Iwry said, “though only time will tell whether this will take.”

It will, but isn’t it good to know that sometimes the government is working for us, rather than against us?

Also read:

5 things to know about retirement plan rollovers 

IRS verdict is in, buyer jury out on QLACs 

5 things to know about the new longevity annuity rules