WASHINGTON — The Department of Labor isn’t doing enough to encourage workers who rely on their 401(k) plans to finance their retirement to consider such lifetime income options as annuities to facilitate such an approach, the Government Accountability Office (GAO) says in a new report.
Related: Annuities for retirement income
The GAO based its findings on responses from retirement plan administrators to a questionnaire that represented more than 40 percent of all 401(k) assets and about a quarter of plans at the end of 2014.
The GAO found that of the plans covered by the questionnaire, about two-thirds did not offer a withdrawal option — payments from accounts, sometimes designed to last a lifetime — and about three-quarters did not offer an annuity, which are arrangements the GAO said can guarantee set payments for life.
The National Association of Insurance and Financial Advisers voiced support for the GAO’s findings.
“Annuities and other lifetime-income products are an important part of many Americans’ retirement plans,” said NAIFA President Jules Gaudreau. “Even more people would certainly benefit from the financial security provided by lifetime-income products if these products were more readily available through 401(k) plans.”
The GAO said that concerns about legal risks and record keeper constraints may deter many plan sponsors—typically employers that provide 401(k) plans and establish investment and distribution options—from offering lifetime income options.
The GAO stated its findings in a report released late Thursday.
The GAO noted in the report that the DOL issues regulations and guidance for plan sponsors and is responsible for educating and assisting them to help ensure the retirement security of workers. For example, DOL has prescribed steps plan sponsors can take to satisfy their fiduciary duties (i.e. act prudently and in the best interest of participants) when selecting an annuity provider for a 401(k) plan, the GAO said.
However, the GAO said, those steps are not often used because they include assessing “sufficient” information to “appropriately” conclude that the annuity provider will be financially able to pay future claims without definitions for those terms. The GAO cited industry stakeholders it interviewed for this finding.
“Without clearer criteria to select an annuity provider, fear of liability may deter plan sponsors from offering annuities,” the GAO said it had been told.
The GAO also said that it found that a mix of lifetime income options to choose from is not usually available. The report noted that the DOL provides an incentive in the form of limited liability relief to plan sponsors who, among other things, provide participants at least three diversified investment options.
But, the GAO said, “no such incentive exists for plan sponsors offering a mix of lifetime income options.”