When the insurance industry began seriously developing the "living benefits" under annuity products for the retail marketplace a few years back, I dubbed them as "not your grandpa’s annuity." This is because they were attempting to address the concerns that the market had about traditional annuities, which are seen as irrevocable, inaccessible, invisible and inflexible.
Lifetime Income
For Guaranteed Lifetime Income in DC Plans: (ITS) Time Has Come Today
But, first, another note of introduction……
It is with great pleasure to announce that my friend and fellow pink-shirted compatriot (many of our industry colleagues may fondly remember THAT story!) Sandy Koeppel has decided to join us as Of Counsel, and to have some fun following his illustrious career at Prudential. Together with myself, Phil Troyer and Conni Toth, we intend to continue to contribute helping make the U.S. retirement system – which we are all so passionate about – work better. Sandy brings a tremendous wealth of experience in guaranteed lifetime income from employer plans to the marketplace (I invite you to read his bio), and intends to continue to carry this torch. Between us all, we offer substantial knowledge of the design, marketing and distribution of these products.
Sandy, as he mentions below, has also formed Plan Income Consulting & Evaluation Services, LLC (PLICES), a consulting firm which has affiliated with this firm and which provides advisors, vendors and employers consulting services related to guaranteed income products.
Drop Sandy a note at sek@rtothlaw.com.
Now, his first blog:
The shift from Defined Benefit to Defined Contribution plans as the primary workplace retirement vehicle has eroded the confidence and jeopardized the retirement security of a vast number of American workers and their families. The recently published EBRI 2011 Retirement Confidence Survey finds that confidence among workers in their ability to have a comfortable retirement has dropped to an all-time low. According to the EBRI survey,
"the percentage of workers not at all confident about having enough money for a comfortable retirement grew from 22 percent in 2010 to 27 percent, the highest level measured in the 21 years of the RCS. At the same time, the percentage very confident shrank to the low of 13 percent." The RCS further states that "56 percent of workers expect to receive benefits from a defined benefit plan in retirement, only 37 percent report that they and/or their spouse currently have such a benefit with a current or previous employer. Therefore, up to 19 percent of workers may be expecting to receive the benefit from a future employer—a scenario that is becoming increasingly unlikely, since private-sector employers, in particular, have been cutting back on their defined benefit offerings."
These findings along with other results of this survey are disturbing and demonstrate that American workers not only are uninformed but feel challenged, concerned, and threatened about potential declines in their future lifestyle in retirement.
With the passage of the Pension Protection Act, Congress recognized the need to instill defined benefit-like outcomes into the defined contribution plan universe. The PPA enables plan sponsors to include in their DC plans features such as automatic enrollment, automatic contribution escalation and gain fiduciary protection by offering qualified default investment alternatives deploying professional money management. These important first steps do much to replicate for workers the defined benefit plan experience in the asset accumulation stage. However, up to now, most DC plans do not offer the critical and essential missing piece to assure retirement security: guaranteed lifetime income. There are many reasons for this failure. Chief among them include: legal uncertainty about the rules and standards that apply to the choice of providers; unsettled tax issues (e.g. applicability of qualified joint and survivor annuity rules) associated with new and innovative forms of guaranteed lifetime income; cost and administrative burdens; lack of demand among participants; lack of guidance from the Department of Labor delineating between advice and education for distribution planning and the availability of out-of-plan (retail) vs in-plan (institutional) guaranteed lifetime income solutions if it is desired.
Continue Reading For Guaranteed Lifetime Income in DC Plans: (ITS) Time Has Come Today
Opportunity Missed: Obscure IRS Shift Provides Contradiction Instead of Clarity for DC Annuities
The seemingly obscure issue of when a payment from an annuity contract purchased under a Defined Contribution plan is considered to be a "payment from an annuity" is actually one of the most pressing tax issues that needs to be resolved in the area of DC annuitization. Resolution of this issue determines when spousal consent…
Prudence, not Prescience: A Suggestion for a Fiduciary Standard for DC Annuity Purchases
The question of what the appropriate fiduciary standard should be in assessing the insurer insolvency risk when purchasing annuities by defined contribution plans continues to be a tough one.
It is also one of the critical issues to be resolved if the efforts to encourage lifetime income from these plans is to be successful. The…
DC Annuity Portability and Asimov’s “M.N.C.”: What Is Old Is New Again
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…
Insurance Company General Account DC Investments and the 408(b)(2) Conundrum: Balancing Capital, Liquidity and Transparency
One of the most maligned and misunderstood, yet one of the most valuable, DC plan investments is the the insurance company general account investment-typically referred to as the “fixed fund,” the “guaranteed fund,” or even sometimes the “stable value fund”(in some of its iterations). These funds guarantee principal and a certain rate of return over a stated period of time. These funds usually (except in an inverted yield environment) provide a much higher rate of return over money market funds, while providing a measure of security of which money market funds can only dream. if the insurance company properly balances liquidity with the rate of return, it is an invaluable offering.
Continue Reading Insurance Company General Account DC Investments and the 408(b)(2) Conundrum: Balancing Capital, Liquidity and Transparency
BNA’s “Insurance Guarantees In Defined Contribution Plans” Published
BNA’s Tax Management Advisory Board published memorandum as an “Advisory Board Analysis” last week, “Income Guarantees in Defined Contribution Plans.” It speaks in some detail of the technical issues confronting the provisions of annuities through a defined contribution plan.
Continue Reading BNA’s “Insurance Guarantees In Defined Contribution Plans” Published
The Annuity RFI: A Rare, Inter-Agency Treat
EBSA and the IRS issued their long promised Request For Information on annuities-or, should I say, as promised by the EBSA. We had not expected this particular piece to be a joint effort. It shows that Phyllis’s and Mark’s agenda is getting policy effectively done, not engaging in damning bureaucratic turf warfare. Hmm. With this…
CORRECTION BLOG: Annuity PLR Reference Incorrect!
My everlasting thanks to Andrea-Ben Yousef of BNA. We were exploring annuities, and some confusion from my blog of January 6th, 2009. We discovered that I posted the incorrect PLR number and link on that blog, where I discussed the importance of a new PLR to DC annuitization. The link I had incorrectly provided was…
IRS PLR Helps Pave the Way for DC Annuities
Annuitization from DC plans suffers from the lack of clarity on a number of key technical rules, which need to be resolved before such annuities can be widely implemented. The IRS has taken a major step in its issuance of PLR200951039, a complex PLR which- for the first time-defines what an annuity really is…