The U.S. Department of Labor (DOL) and the Treasury Department have issued a request for information (RFI) seeking public comments on enhancing employer-sponsored defined contribution plans through annuities and other options that provide an income stream after retiring. The RFI (view here) was published in the Feb. 2, 2010, edition of Federal Register. The DOL is seeking comments on or before May 3, 2010.
The initiative "is particularly important given the shift from defined benefit plans that offer employees lifetime annuities to 401(k) and other defined contribution plans that typically distribute retirement savings in a lump sum payment,” said Phyllis C. Borzi, assistant secretary for the Labor Department’s Employee Benefits Security Administration, in a statement.
The RFI seeks comments on a broad range of topics, including:
• The advantages and disadvantages—for workers and employers—of distributing benefits as a lifetime stream of income, and why lump sum distributions are chosen more often than a lifetime income option.
• The type of information participants need to make informed decisions in selecting the form of retirement income.
• Disclosure of participants’ retirement income in the form of account balances as well as in the form of lifetime streams of payment.
• Developments in the marketplace that relate to annuities and other lifetime income options.
"Americans are living longer, and today’s retirees need to manage savings to last 20 years, 30 years or more," said Frank Keating, president and CEO of the American Council of Life Insurers, in a statement. He encouraged employers and employees "to recognize the importance of receiving a guaranteed lifetime income in retirement.”
But critics have voiced concerns over the high fees associated with annuities and the complex structure of these products. And while some financial advisers recommend rolling over at least a portion of 401(k) savings into an annuity at retirement to provide steady income, many question the value of contributing to annuities during the savings-accumulation years, given the high expenses and limited capital-growth potential of these products.
Comments responding to the lifetime income RFI may be submitted on or before May 3, 2010, by e-mail to E-ORI@dol.gov or through the federal e-rulemaking portal at www.regulations.gov.
Stephen Miller is an online editor/manager for SHRM.
DOL Fact Sheet: Lifetime Income Options for Retirement Plans, February 2010
The Unloved Annuity Gets a Hug from the Obama Administration, New York Times, February 2010
Annuities the Next 401(k) SNAFU? Advisers Offer Six Reasons Why, Fiduciary News, February 2010
401(k)s Opening Door to Annuities, BusinessWeek, February 2010
IRS Rules on Variable Annuity Contracts Issued to and Distributed from DC Plans, Wolters Kluwer, February 2010
Related Articles—SHRM Online:
More Employers Consider Annuities in 401(k) Plans, SHRM Online Benefits Discipline, January 2010
401(k) Distributions: Easing into Annuities, SHRM Online Benefits Discipline, June 2008
The 401(k) Annuity Rollover Option at Ericsson, SHRM Online Benefits Discipline, June 2008
Adding Annuities Called 'Next Frontier' in 401(k) Plans, SHRM Online Benefits Discipline, August 2007
Cashing Out: Help Employees Make Smarter Distribution Decisions, SHRM Online Benefits Discipline, December 2005
SHRM Online Benefits Discipline