Retirement leaders push for lifetime-income options in 401(k)s

Retirement industry leaders today pressed officials from the Labor and Treasury departments to ensure that any future “safe-harbor” rules for annuities in 401(k) plans also include other lifetime-income options.
Insurers and other retirement advocates are pushing for the government to consider annuities safe-harbor investments, which would limit or eliminate the liability of plan sponsors and advisers when recommending such options.
“Safe harbor should be expanded to facilitate plan sponsors in providing a broad range of options,” said Noel Abkemeier, a consulting actuary with Milliman Inc. who appeared today before a panel of Labor and Treasury officials on the behalf of the American Academy of Actuaries. “But it should also be extended to other lifetime-income options, aside from annuities, in order to preserve choice.”
Today marks the second leg of a two-day hearing in Washington where industry experts gathered to discuss with members of federal agencies on how to proceed with lifetime-income solutions. Talks concentrated on the logistics of adding these products as well as the use of other possible solutions.
Much of yesterday’s discussion focused on obstacles keeping plan sponsors from using annuities, as well as the in-plan use of annuities versus outside-of-plan purchase of annuities using qualified dollars.
Those distinctions miss the point, as regulatory clarity is the real linchpin of incorporating these products into plans, said Drew Carrington, managing director and head of defined-contribution and retirement solutions at UBS Global Asset Management.
“This [distinction] isn’t helpful and will be increasingly less so,” he added. “New product solutions will blur these distinctions. Does the product or design help improve outcomes? If so, then the distinction shouldn’t matter.”
Another concern is whether employers will be protected if they decide they can’t offer a lifetime-income solution for future contributions, according to testimony from The Spark Institute.
The group is working on an information-sharing-standards project that’s on track to wrap up this month. The project is expected to make it easier for carriers and record keepers to make the income products available to plan participants and allow for portability if a plan switches record keepers.
If employers can exit an arrangement with a carrier, then perhaps they’ll be more open to incorporating annuities and other income solutions. “If they know they have a way out, they can make on an ongoing basis the appropriate fiduciary or plan management decision,” Mr. Carrington said.
For providers who have managed to integrate an annuitylike feature along with their qualified retirement plans, the concept appears to be winning over some plans. But the road to major adoption won’t be easy.
Charles P. Nelson, president of Great-West Retirement Services, testified that his company launched a guaranteed-lifetime-withdrawal benefit, called Secure Foundation, for its defined-contribution clients a little over three months ago. Approximately 300 retirement plans have added the feature, he said.
Still, there have been some regulatory hurdles to overcome. For instance, states guarantee funds backed by annuities up to a certain amount, but living-benefit riders aren’t always subject to those protections.
“It varies by state and whether the guarantee benefit is in plan,” Mr. Nelson said in an interview. “Most states don’t cover it.”