U.S. Treasury, Labor Departments Act to Enhance Retirement Security for an America Built to Last

Executive Actions Broaden Options, Increase Transparency for 401(k) Savers
WASHINGTON – 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.
“As President Obama has said, we’re at a make or break moment for the middle class and those trying to reach it.  What’s at stake is the American value that hard work pays off. The common-sense rule that we are finalizing today will shed light on the true costs of 401(k) accounts and ultimately reward those working hard and saving for retirement,” said Secretary of Labor Hilda L. Solis. “This rule, and its companion participant-level fee disclosure rule, will greatly increase the level of transparency in retirement plans. When businesses that sponsor retirement plans, and the workers who participate in those plans, get better information on associated fees and expenses, they’ll be able to shop around and make informed decisions that will lead to cost savings and a larger nest egg at retirement.”
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 today’s actions, which can be accessed here.
More on the Treasury’s Proposed Guidance Package on Lifetime Income
As Americans live longer and pensions increasingly trend away from the traditional defined-benefit structure that provides a stream of guaranteed income for the duration of a retiree’s life, improving access to retirement income options is an important way to help retirees manage their savings. Lifetime income is particularly important for women, as the average lifespan for American women exceeds that of men.
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 retiree’s 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 employer’s 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.





An index annuity is a fixed annuity, either immediate or
that earns interest or provides benefits that are linked
to an external
equity reference or an equity index. The value of
the index might be tied to a stock or other equity index.

When you rollover your 401k to an indexed annuity you own an
insurance contract. You are not buying shares of any stock or index.
Only an annuity can provide a guaranteed income.
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     An indexed annuity is different from other  fixed annuities
because of the way it credits interest to your annuity's value.
Indexed Annuities credit interest using a formula based on changes  
in the index to which the annuity is linked.

Your fixed-indexed annuity, like other fixed annuities, also
promises to pay a minimum interest rate.  The rate that will be
applied will not be less than this minimum guaranteed rate even
if the index-linked interest rate is lower.  The value of your annuity
also will not drop below a guaranteed minimum.

Questions You Should Ask The 401k Annuity Rollover Agent.

NAIC National Association of Insurance Commissioners Guide.