Federal regulators hope that employers and other stakeholders in the retirement plan community can offer up some sound advice on providing annuities through defined contribution plans.
The Departments of Labor and Treasury issued this week a request for information (RIF) to help federal regulators map out a course of action to improve Americans’ retirement savings by purchasing annuities.
Americans are living longer, and many will probably outlive their retirement assets. Annuities, in part, offer retirees the opportunity to exchange accumulated wealth for a lifetime stream of guaranteed income. Some retirement experts observe that the 2008-2009 stock market bubble has also forced policymakers to rethink how the nation saves for retirement.
In the past, many U.S. workers relied on their pension plans for a lifetime annuity, but more employers have stopped offering defined benefit plans. Government data show that, in 1975, about 27 million participants were enrolled in a DB plan, dropping to approximately 20 million in 2006. Meanwhile, the number of participants in DC plans jumped from about 11 million in 1975 to 66 million in 2006.
“[The RIF] 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,” says Phyllis C. Borzi, assistant secretary for the DOL’s Employee Benefits Security Administration.
The RIF hopes to solicit comments on topics that include:
- The advantages and disadvantages of distributing benefits as a lifetime stream of income both for workers and employers, 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.
Comments must be filed to the departments on or before May 3, 2010.
