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
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.
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.
There are substantial efforts underway throughout the retirement market, attempting to wrap minds around the various aspects of providing lifetime income from DC plans. This incudes efforts to design new programs and how to explain them to sponsors, fiduciaries and advisers who must make the ultimate selection election between competing choices.This will not only involve getting familiar with a whole new vocabulary, but ultimately there needs to be at least a working knowledge of the different types of annuities which may be in play in any of these designs.
Continue Reading Building a Lifetime Income Product
There have been a significant number of developments since then, not the least of which being the SECURE Act providing three key new provisions to support lifetime income from DC plans (with the new annuity provider safe harbor, the new lifetime income disclosure rules, and the new lifetime income “portability”); invigorated efforts by all sorts of financial service companies to provide a variety of different lifetime income programs; and, finally, a growing sense by plan sponsors and participants that lifetime income guarantees are important (see, for example this recent TIAA survey).
Even for all of this excitement, elements of that “annuity fog” I wrote about 13 years seem to continue to linger. I suspect it still has to do with the market’s continuing basic lack of understanding and how guarantees work in a defined contribution retirement plan…
Continue Reading The DC Annuity Fog, Revisited
You may’ve noticed that the SECURE Act introduced yet another new twist to the 403(b) world: the Qualified Plan Distribution Annuity Contract (“QPDAC”-you may want to look at my prior blog related to these lifetime income acronyms). Its not that Congress was singly out 403(b) plans, as 401(a) and 457(b) plansnow also have the ability to distribute QPDAC. But, as in all other things 403(b)s, there are a number of unique twists to the rules which exist solely in the 403(b) world.
Continue Reading The 403(b) “Qualified Plan Distribution Annuity Contract” Under SECURE Section 109
This is a pretty exciting time in the DC marketplace. Years of work from a number of different quarters seem to be finally beginning to coalesce on the notion of sanely “decumulating” assets from DC plans. I wonder if a measure of this all may not be the growing catalog of acronyms associated with annuities,…
Common PEP problems are barely addressed by the SECURE Act’s fix to the “one bad apple” rule (called the “unified plan rule” by the IRS, under which a participating employer’s disqualification error will disqualify the entire plan), though there seems to be a common misunderstanding in the industry to the contrary. That new “bad apple” fix actually has very little operational impact on a MEP /PEP whose operations has been affected by that bad actor. It provides only a narrow remedy to a narrow issue by which a P3 or lead sponsor can get rid of an employer who causes an operational/qualification error in the plan-though it may take up to a year to do so if one is to follow the IRS’s pre-SECURE Act proposed regs.
Continue Reading The Limited Utility of the “One Bad Apple” Rule Fix
Nevin Adams, dropped another one of his gems (this one on cryptocurrency and “innovations” in self-directed brokerage accounts) while I was drafting this piece on 403(b) SDBAs, making my piece even more timely. Its a striking case in point of another unique feature showing the differences between 403(b) plans and 401(k) plans: Not…
Conni and I have lurked in the netherworld of retirement plan administration for decades now, working on those things nobody ever sees. One of the ways we explain what we do to friends and family is with a story about their own 401(k) and 403(b) plans. What we tell them is that when they go…
The Investment Company Institute, the main mutual fund trade group in Washington DC, issued last month its retirement report for the 2020 fourth quarter with $22 trillion attributable to retirement plan assets alone, which is virtually the same size of the the market capitalization of the companies traded on the New York Stock Exchange as of years’ end 2020, reported to have been $24.49 trillion. Adding in the 12.2 trillion held in IRAs, these assets constitute over 2/3 of the reported value of all publicly traded securities in the US., at $50.9 trillion. This influence seem to be rarely discussed…
Continue Reading The Massive Influence of Retirement Plans on Capital Markets: the Days of ERISA as a “Backwater” are Long Gone