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November 24, 2014 at 09:27 AM
The Pension Benefit Guaranty Corp. unveiled the final rules Monday for anyone who rolls over their 401(k) into an employer’s defined benefit plan, announcing that those dollars would not be affected by the PBGC’s guarantee limits.
Fewer employers nowadays offer a defined-benefit plan but where they do, the PBGC decision could help encourage participants looking for a guaranteed lifetime income stream.
Concerns about whether rolled-over assets would be protected by the PBGC in the event of a plan’s failure have until now discouraged the practice.
“The agency hopes to encourage people to get lifetime income by removing potential barriers to moving their benefits from defined contribution plans to defined benefit plans,” said PBGC in a news release. “The final rule removes the fear that the amounts rolled over would suffer under guarantee limits should PBGC step in and pay benefits.”
According to the final rules, defined contribution assets rolled into a defined benefit plan will be guaranteeable, even in the event that the insured assets exceed the maximum benefit paid out by the PBGC, which will increase to more than $60,000 next year.
The PBGC proposed the rule in April, receiving comments from the AFL-CIO, the American Council of Life Insurers and the AARP, all of whom supported the proposal as a way to promote lifetime-income products.
The final rule largely resembles the proposed rule, with the crucial difference being that all of the DC benefits — the employee’s contributions, the employer’s match, and all the returns on investment — will be treated as a defined benefit once rolled over and protected by the PBGC.
