How, one may legitimately ask, can anyone possibly write anything that makes any sense with a title like the one I’ve given this blog?
Easily, is my answer, as as long as one accepts the fact that our world of retirement plans and rules is not so limited as it seems at first glance, and that what we do is actually a critical component of a well functioning and relatively fair (as far as it goes…) society. It necessarily encompass broad concepts outside of narrowly constricted regulatory compliance-even concepts raised in science fiction classics.
I have had the pleasure of re-reading one of my all-time favorite science fiction novels, "The End of Eternity," by Isaac Asimov. Written in 1955, its a story of the "Eternals" who travel through a sort of time elevator. These Eternals time traveled in order to change events at some point in time in order to prevent major destruction (such as a nuclear holocaust) at some time in the future. It is based on the same premise as Malcolm Gladwell’s book "The Tipping Point", where seemingly small events can have significant future impact .
Harlan, the main character in Asimov’s novel, was one of these "Eternals." He was instructed by the Computer of the need to travel into time and cause a malfunction in a spaceship which would kill the 12 people on that ship. This was needed in order to prevent an earthwide catastrophe a few centuries later. Harlan struggled with this order and, through mathematical algorithms, determined that merely moving a canister on that same ship from one location to another would have the same affect on the future. Asimov labeled this the "Minimum Necessary Change," or "M.N.C."
"M.N.C." A concept which legislators and regulators often overlook when developing retirement plan rules (note I said "often," as there are some fine examples of MNC in the regulatory lore). It is the "Minimum Necessary Change" approach which I would advocate when approaching the DC annutization issue.
A prime candidate for MNC would be the seemingly intractable issue of portability: how do you allow a person to purchase lifetime guarantees in a DC plan, where the plan may want to change insurance vendors; where the employee changes employers; or when the plan terminates?
The solution for the government regulators may be to actually do as little as possible, and let those who know how to create these product figure it out. For example, the regulations could require (under both ERISA and the Code, let’s not make the mistake again of making it just an ERISA rule) any company wishing to sell lifetime guarantees to a plan to provide a portability solution-such as the ability to distribute the guarantee as part of a contract to the individual. This is not a new issue for insurers, for example, as they have addressed this one in the past with the ultimate portable product: the individual 403(b) contract. Yes, there would be costs related to doing this, but this would be taken into account in the pricing of the product to the plan. A sort of classic "internalization of costs" of which economists speak.
These "distributed annuities" are already permitted by the IRS, and a legislative rule change may be necessary to permit the in service distribution of the contract, and the manner in which they would need to be reported (perhaps by the issuing company instead of the plan). But, as under existing law, the issuer becomes legal plan administrator of the contract, charged with making sure the "distributed annuity rules" are followed.
Sound complicated, and nowhere near a "MNC"? Not really. Making something like this work requires insurers and regulators to "dust off" well established rules, procedures and practices which have been in place for 90 years and which were particularly effective in the 403(b) marketplace. We do NOT need to create something out of "whole cloth."
Or, as is often said, "what is old is new again"……