WASHINGTON (MNI) – The following are excerpts of an announcement
issued Thursday morning by the Departments of Treasury and Labor on both
enacted and proposed rules to expand retirement account options and
flexibility:
Executive Actions Broaden Options, Increase Transparency for 401(k) Savers
Following President Obama’s State of the Union Address in which he
proposed a blueprint for an American economy built to last, the U.S.
Departments of the Treasury and Labor today announced two executive
actions designed to help enhance security for millions of Americans
saving for retirement. The measures announced today will expand
transparency in the 401(k) plan marketplace and broaden the availability
of retirement plan options so Americans can maximize their ability to
save responsibly and securely.
The Treasury Department’s proposal will reduce regulatory burdens
and make it easier for retirees to choose to receive their benefits as a
stream of income in regular payments for as long as they live. These
flexible “lifetime income” options can provide greater certainty in
retirement and minimize the risk of retirees outliving or underutilizing
their retirement savings.
“When American workers take the responsible step of saving for
retirement, we should do all we can to provide them with sensible,
accessible choices for managing their hard-earned savings. Having the
ability to choose from expanded options will help retirees and their
families achieve both greater value and security,” said Treasury
Secretary Tim Geithner.
The U.S. Department of Labor’s Employee Benefits Security
Administration today issued a final rule that will provide employers
sponsoring pension and 401(k) plans with information about the
administrative and investment costs associated with providing such plans
to their workers. The department also announced a three-month extension
in the effective date of this rule, meaning service providers must be in
compliance by July 1, 2012, for new and existing contracts or
arrangements between ERISA-covered plans and service providers.
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Together, the actions by both the Treasury and Labor Departments
will expand available options and provide greater transparency to help
working families successfully plan for retirement and manage their
retirement savings. The Council of Economic Advisers has prepared a
detailed report describing the significance of todays actions, which
can be accessed here.
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Many retirees find it difficult to devise and adhere to a
methodical plan for managing and drawing down retirement assets over an
uncertain, and potentially lengthy, time horizon. Some retirees may
forecast that they will live only to or just past the average life
expectancy, only to far outlive their savings by living much longer.
Other retirees, fearful of exhausting their savings, may unnecessarily
restrict their spending and not reap the benefits of the funds they have
saved. Since Americans financial prospects for retirement increasingly
are determined not solely by how much they save but also by how they
manage their savings, retirement policy should focus both on how best to
encourage the accumulation of savings and on how to give retirees
attractive options for using that accumulation to provide retirement
income.
Today’s guidance package , which builds on comments received in
response to the Departments of the Treasury and Labor’s joint request
for information on the desirability and availability of lifetime income
alternatives in retirement plans, will help Americans meet their need
for income during retirement by:
1. Encouraging Partial Annuity Options. Retirement plan
participants are often confronted with a cash or annuity decision upon
retirement. Given an all-or-nothing choice, many opt for a lump sum and
decline the lifetime income stream because they are unaware they have
the option to combine approaches. The proposed regulation changes a
regulatory requirement to make it simpler for defined benefit pension
plans to offer combinations of lifetime income and a single-sum cash
payment. This is designed to encourage more retirees to consider partial
annuities, which allow for retirees to receive a steady stream of income
for the duration of their lifetimes while also keeping a portion of
their savings invested in assets with the flexibility to respond to
liquidity needs.
2. Removing a Key Obstacle to “Longevity” Annuities. Another
proposed regulation expands on the combination approach by removing a
regulatory impediment to purchasing a deferred “longevity” annuity. This
change would make it easier for retirees to use a limited portion of
their savings to purchase guaranteed income for life starting at an
advanced age, such as average life expectancy. Annuities of this type
would provide an efficient way for 65- or 70-year-olds (or even younger
savers) to address the risk of outliving their assets by purchasing a
predictable income stream starting at age 80 or 85. Once that risk is
addressed, a retirees task of generating income from the remaining
assets is more manageable because it is limited to a fixed period of
time.
3. Clarifying Rules for Plan Rollovers to Purchase Annuities and
Spousal Protection Rules for 401(k) Deferred Annuities. Two revenue
rulings issued today clarify how rules protecting employees and spouses
apply when plan sponsors offer lifetime income options under their
plans. The first ruling clarifies how the rules apply when employees are
given the option to use a single-sum 401(k) payout to obtain a low-cost
annuity from their employers defined benefit pension plan. The second
ruling clarifies that employers can offer their employees the option to
use 401(k) savings to purchase deferred annuities and still satisfy
spousal protection rules with minimal administrative burdens. Both of
these rulings would facilitate the availability of flexible options for
employees so that they can better use their 401(k) savings to achieve
financial security in retirement.
Additional information on these proposals is available in a fact
sheet posted on Treasury.gov. The proposed regulations announced today
are also available at Regulations.gov for public comment.
More on the Department of Labor Final Rule on 401(k) Fee Disclosure
The Labor Department’s rule requires service providers to furnish
information which will enable pension plan fiduciaries to determine both
the reasonableness of compensation paid to the service providers and any
conflicts of interest that may impact a service provider’s performance
under a service contract or arrangement. It requires disclosures of
direct and indirect compensation certain service providers receive in
connection with the services they provide. The rule applies to those
service providers that expect to receive $1,000 or more in compensation
and provide certain fiduciary or registered investment advisory
services, make available plan investment options in connection with
brokerage or recordkeeping services, or otherwise receive indirect
compensation for providing certain services to a plan.
The Department today also announced that in the near future it
intends to publish for public comment a separate proposal that would
require service providers, in addition to providing the required fee and
investment expense information, to furnish a guide or similar tool to
assist plan fiduciaries in identifying and locating the potentially
complex information that must be disclosed and which may be located in
multiple documents.
The 3-month extension of the effective date of todays final rule
has been provided to allow service providers sufficient time to prepare
for compliance. Service providers not in compliance as of July 1, 2012
will be in violation of ERISAs prohibited transaction rules and subject
to penalties under the Internal Revenue Code.
The effective date of the final rule announced today works in
conjunction with the compliance date of the departments
participant-level disclosure regulation (29 CFR 2550.404a-5) which
requires plan administrators to give workers who direct their retirement
accounts in 401(k)-type plans easy-to-understand information to
comparison shop among the plan investment options available to them.
Due to the extension of the effective date of the final rule announced
today, plan administrators for calendar year plans now must make the
initial annual disclosure of plan-level and investment-level
information (including associated fees and expenses) to participants no
later than August 30, 2012, and the first quarterly statement (for fees
incurred July through September) must be furnished no later than
November 14, 2012.
Plan sponsors and service providers with questions about the final
rule can contact EBSA’s Office of Regulations and Interpretations at
202-693-8500. A fact sheet on this regulation is available on EBSA’s
Web site at http://www.dol.gov/ebsa/newsroom/.
** Market News International Washington Bureau: 202-371-2121 **
[TOPICS: MAUDS$,M$U$$$]
