Federal agencies are asking for advice about using annuities and other lifetime income arrangements in retirement plans – and in qualified default investment alternatives.
The Employee Benefits Security Administration and the Internal Revenue Service have posted a request for information about lifetime income options today in the Federal Register.
EBSA, an arm of the U.S. Labor Department, and the IRS, an arm of the U.S. Treasury Department, want "public comments to assist the agencies in determining what steps to take to enhance retirement security for workers in employer-sponsored retirement plans through lifetime annuities or other arrangements that provide a stream of income after retiring," officials say.
Comments are due May 3.
The agencies believe the initiative is important because more employers are shifting to 401(k) plans, which typically make lump-sum payments to retiring participants, and away from defined benefit pension plans, which usually pay retirees until the retirees die.
EBSA and the IRS are asking about:
- The advantages and disadvantages of distributing benefits as a lifetime stream of income.
- The information participants need to make informed decisions when selecting a retirement income option.
- Developments in the lifetime income product market, such as the percentage of participants who already have an annuitization option who choose to annuitize part or all of their assets.
- The idea of encouraging plan sponsors to build a lifetime income option into the "qualified default investment alternative."
An employer can use a QDIA to manage the assets of retirement plan participants who fail to say how they want the assets allocated.
The agencies also ask about lifetime income product design.
"What product features have a significant impact on the cost of providing lifetime income or other arrangements designed to provide a stream of income after retirement, such as features that provide participants with the option of lifetime payments, while retaining the flexibility to accelerate distributions if needed?" the agencies ask.
Elsewhere, the agencies ask whether the government should create an annuitization requirement for defined contribution retirement plan participants.
"If so, should that option be the default distribution option, and should it apply to the entire account balance?" the agencies ask. "To what extent would such a requirement encourage or discourage plan sponsorship?"
The agencies note that a Labor Department safe harbor gives plan fiduciaries guidance about how to choose annuity providers for the purposes of distributing defined contribution plan benefits.
"To what extent could or should the Department of Labor make changes to the safe harbor?" the agencies ask.
The American Council of Life Insurers, Washington, has welcomed the request for information.
"We are especially pleased the proposal calls for the Department of Labor to ease barriers to annuitization of retirement savings," ACLI President Frank Keating says in ACLI statement. "As the only financial product that can convert savings into a guaranteed lifetime stream of income, annuities can play a key role in Americans' retirement security plans."
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