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
Avoiding Studebaker
“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.
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SECURE 2.0’s 403(b) PEP Rules Will Be, Well, Different…..
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…..
403(b) and Lifetime Income
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?
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The Mathematics of the GLWB
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
401(k) Loan Protection Helps Address Leakage. How it Works.
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.
Building a Lifetime Income Product
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.
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The DC Annuity Fog, Revisited
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
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The 403(b) “Qualified Plan Distribution Annuity Contract” Under SECURE Section 109
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
QPDAC, DIA, QLAC, QPDA, GLWB, FIA, VA, RILA and Others: Welcome to the World of DC Lifetime Income
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,