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Bob Toth has more than 35 years of experience in employee benefits law. His practice focuses on the design, administration and distribution of financial products and services for retirement plans.

202(b) actually does not make any statutory change to any of the Code’s or ERISA rules governing the distribution of a plan’s assets pursuant to divorce or separation orders. Instead, it instructs Treasury to amend its QLAC rules, which are obscurely found under Required Minimum Distribution applicable to dc plans which purchase annuities (Reg 1.401(a)(9)-6). The regs must be changed to reflect that if a QLAC is issued as a joint and survivor annuity (which it is required to be unless spousal consent is obtained, under plans to which such rules apply), and a divorce subsequently occurs prior to the date the annuity payments actually begin, the DRO “will not affect the permissibility of the joint and survivor annuity benefits” as long as that order meets certain requirements.
Continue Reading Secure 2.0’s New QDRO Rules: The Mainstreaming of the QLAC?

One of the more curious circumstances under SECURE 2.0 arises from Act Section 128, which purports to permit 403(b) plan custodial accounts to invest in interests in Collective Investment Trusts (CITs), referred to as “81-100” group trusts in the Act.

Section 128 fixed that part of problem, as it amended the Code to permit the investment of 403(b) assets in group trusts, alongside mutual funds. But, as the Senate Finance Committee noted in its own Committee Report to the EARN Act, “In order to permit 403(b) plans to participate in a group trust, certain revisions to the securities laws will be required.” Those necessary revisions, however, never made it into SECURE 2.0
Continue Reading Secure 2.0’s Unresolved 403(b) CIT Securities Law Issue

Most of the commonly available individual annuities sold to consumers are not suitable for the purchase by plans as part of their DC Lifetime Income program without changes being made to the design, administration and compensation (it is also worthwhile to note that the pricing and disclosure rules related to individual and retirement plan products can be vastly different). The differences can range from the types of disclosures being way, to the handling of money in and none out, to the manner in which it is all reported on required annual statements, along with a basketful of other sorts of requirements.

A number of insurers have made the investment necessary to accomplish this feat. It does, however, become a key fiduciary inquiry as to whether or not the annuity being purchased has been designed for use by retirement plans plans.  Recognize also that different products of the same insurer might be supported by different systems and processes, and the fiduciary will need to make sure it is getting to the right one.

Continue Reading “Engineering” the Use of Individual Annuities In DC Lifetime Income Programs

Actuaries and mathematicians will tell us that the “actuarial cost” of any annuity you may purchase is effectively the same, no matter what sort of annuity you purchase. After all,  your life expectancy is what it is; the interest rates are what they are; and the insurance companies investments supporting the lifetime guarantees are what

When we assess how to implement the tremendous changes that we see on the horizon, whether it be  implementing unique lifetime income vehicles,  PEPs, collective trusts, or any other of the sort of the innovative programs being develop which are designed to enhance retirement security. Putting them all into play requires attention to this obscure detail.
Continue Reading The “Entity” Difference Between 403(b) and 401(a) Plans

“Decumulation” of retirement benefits has shifted from defined benefit plans to defined contribution plans. I had written in 2009 that the demise of the DB plan was inevitable because of the rise and fall of plan sponsors. It is one thing to rely upon an employer’s current funding of the accumulation of the lifetime income benefit through its employer sponsored retirement plan; it is quite another to expect that same employer sponsored plan to actually provide the guaranteed retirement payout over the retiree’s lifetime.DC plans can avoid this fate.

Continue Reading Avoiding Studebaker

Congress is taking a well crafted, though pretty unusual, approach to the manner in which it has chosen to allow 403(b) plans to participate in PEPs. It is doing so in a way which seems to be a recognition of the impact of the details that associate to these sorts of dramatic changes. What is noteworthy is that 403(b) PEPs are going to be enabled through changes to 403(b), and not by simply including them in the definitional sections of 413(e), and through changes to ERISA’s PEP language under Sections 3(43) and 3(44). This is critically important because had Congress chosen to simply amend 413(e), it would have opened a Pandora’s box of details which would have demanded clumsy (and perhaps extensive) regulatory fixes. 
Continue Reading SECURE 2.0’s 403(b) PEP Rules Will Be, Well, Different…..

With all of the current focus on unique programs designed to enhance the attractiveness to participants and fiduciaries of adopting lifetime income programs under defined contribution plans, there is little discussion about how all of this plays out in the 403(b) market. Guarantee lifetime payouts from 403(b) annuity contracts are still alive and well, particularly in the higher eduction market which is still dominated by TIAA and its insurance products.  However, with the  the now-decade-long-shift in the 403(b) market to the mutual fund based group custodial arrangements designed to mimic 401(k), where do those new lifetime income programs fit?
Continue Reading 403(b) and Lifetime Income

The provision of the “Guaranteed Lifetime Withdrawal Benefit” (or GLWB) is a key element of most of the current market efforts to provide guaranteed lifetime income programs from defined contribution plans-and with good reason. The GLWB is one of a class of annuity payment programs referred to as “living benefits”  which seek to remove the

Loan defaults prevented by automatic enrollment in loan protection (protection which would be triggered default following termination from employment) decreases EBRI’s retirement security deficit by $1.96 trillion, or by 53%. This identifies loan defaults following termination of employment as being a key source of “leakage,” as well as an important element of  the nation’s “retirement savings deficit.” The massive size of this systemic retirement security loss from loan defaults has largely gone unnoticed in the past by policymakers, plan sponsors and plan advisers.
Continue Reading 401(k) Loan Protection Helps Address Leakage. How it Works.