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What the Return of the 401(k) Annuitization Fight Means for You

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Rep. Kevin Brady has included a gift for life insurers in a big new retirement package: a safe harbor provision for 401(k) plan sponsors who are choosing lifetime income stream providers.

(Related: Sweeping Tax, Retirement Bill Released in House)

The “Fiduciary Safe Harbor for Selection of Lifetime Income Provider” provision could make it easier, and safer, for a retirement plan sponsor to build a lifetime annuity option into the plan.

If the annuitization safe harbor provision became law, a retiring participant could simply convert part or all of the account value into a stream of income, instead of taking chunks of cash out manually, or rolling the account value into an individual annuity.

Another proposal provision would let small employers join together to offer workers multi-employer retirement plans, and a third would require plan sponsors to provide illustrations showing workers how much monthly retirement income their retirement account value could create.

Congress has been considering other legislation containing those provisions for months.

Brady, a Texas Republican, is the current chairman of the House Ways and Means Committee. Democrats are set to take control of the House in January.

The current short, post-election “lame duck” session is set to end by Jan. 3, 2019. Rep. Richard Neal, D-Mass., is seen as the individual most likely to succeed Brady as head of Ways and Means.

There’s no guarantee that any legislation other than, possibly, the bare minimum needed to keep the United States in operation will become law by January.

But here are three reasons the new lifetime income fiduciary safe harbor proposal could still be important to agents to brokers.

1. Democrats have been showing an interest in 401(k) plan annuitization legislation for years.

Neal has not introduced or cosponsored a bill containing an annuitization option safe harbor, but he has introduced his own version of the “Retirement Plan Simplification and Enhancement Act of 2017″ bill, H.R. 4524.

The bill includes a lifetime income portability option, and it would eliminate any barriers to use of lifetime income investments  that are related to the plan participant’s age or years of service.

Republicans and Democrats have been able to team up to get some health-related legislation signed into law during the current Congress. They also showed some signs of bipartisanship in connection with retirement issues, and it’s possible that, even if the Brady proposal dies, the 401(k) plan annuitization safe harbor provision could pass in the next Congress.

2. The proposal could create headaches for life insurance agents and other financial professionals.

If more retirement plan sponsors offer in-plan annuitization options, that could reduce the size of the retirement plan rollover market. The number of retirees looking for individual annuities and other individual retirement arrangements could fall.

Even if the effect of the shift on the number of individual annuity prospects is modest, life insurers themselves could be more interested in courting retirement plan sponsors with lifetime income provider needs, and less interested in courting individual retirement savers and their advisors.

3. The proposal could create opportunities for financial professionals.

If retirement plan sponsors have an easier time offering annuitization options, that could give financial professionals in the individual annuity market a chance to get some employer plan business.

Two years ago, when investigators at the U.S. Government Accountability Office looked at 401(k) plan account value withdrawal and annuitization options, they found that only a minority of plans of any size offered any withdrawal or annuitization options. Only about 14% offered a fixed immediate annuity option.

See what the GAO found in the data card slideshow above.

About two-thirds of the plan sponsors with no annuitization options said fear of exposure to lawsuits was at least partly responsible for the lack of annuitization options.


Susan Neely, the president of the American Council of Life Insurers, put out a statement welcoming the introduction of the Brady package.

“The retirement security provisions offer lawmakers the opportunity to continue the work they began earlier this year and help generations of Americans secure their retirements for life,” Neely said in the statement. “They will enhance and expand access to America’s retirement system, with a much-needed focus on small employers.”

Cathy Weatherford, president of the Insured Retired Institute, also put out a statement welcoming the package.

” “Chairman Brady’s proposal is a dramatic development that we hope will fuel momentum in the waning days of this session of Congress to advance comprehensive retirement security legislation,” Weatherford said.


Brady has packaged the retirement plan benefits annuitization provision as Section 323 in the text of a proposed House amendment, to a proposed Senate amendment, to H.R. 88.

The underlying vehicle for getting all of this legislation through Congress is H.R. 88, the “Shiloh National Military Park Boundary Adjustment and Parker’s Crossroads Battlefield Designation Act” bill.

The House Rules Committee packages bills for action on the House floor. Members of that committee are preparing to consider the Brady retirement package start at 3 p.m. Eastern time Wednesday.

The House Rules staff has posted a collection of resources related to the Brady proposal on the web.

The full Senate amendment to H.R. 88 page is available here.

A copy of the Brady package proposal is available here.

A summary of the Brady package is available here.

House Rules usually streams video of its meetings live on the web. A link to the video is not yet available but may show up here later.

The Human Element

The House Rules meeting could be dramatic for reasons unrelated to the Brady proposal: Rep. Pete Sessions, R-Texas, recently lost his seat to Colin Allred, a Democrat, after serving in the House since 2003.

Rep. Jared Polis, D-Colo., one of the outspoken Democrats on the committee, has been elected to serve as the next governor of Colorado.

— Read House Passes Bill With 401(k) Plan Annuitization Safe Harboron ThinkAdvisor.

— Connect with ThinkAdvisor Life/Health on LinkedIn and Twitter.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.