A title like this one was bound to happen; and I was tempted to publish it on April Fool’s Day-except that its really not a joke.
Where it comes from is the simple fact that any DC Lifetime Income Program (ok, why not, lets use the acronym “DCLIP” while we’re at it) that guarantees lifetime
Many practitioners will point to the 2007 403(b) regs (the “new regs” as many of us often still call them, 16 years later…) as being a real seminal moment in the market, and probably rightfully so. However, an even more fundamental development occurred some 7 or 8 years earlier, which still has deep reverberations in
One of the inevitable results of Congress’s failure to cobble together some sort of compromise on what the most suitable “Securities Fix” would be for the 403(b) CIT is a flurry of activity to find some way to craft a solution which would permit 403(b) plans’ investments in 81-100 trusts without a statutory fix. From
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…..