In Robert Pirsig’s novel, Zen and The Art of Motorcycle Maintenance, the protagonist was a technical manual writer who went insane. The author commented that the book had little relation to either Zen or motorcycle maintenance. But at the core of the story was the minutiae which eventually drove him mad: to any explanation he could write in any of his manuals, he could always ask the question “why?”
Similarly, on the topic of annuity regulation in DC plans, minutiae is central to the theme. It is in dwelling there, though, is where I believe that many of the solutions to the public policy challenges raised by this topic can be found. I just hope it doesn’t drive us mad as well…
It may seem to some a bit silly to compare annuity regulation to a classic, modern philosophical tome, but its really not. The answer to the questions at which the regulators will arrive will affect an awful lot of people and businesses for an awfully long time. (For my view on how technical regs reflect important policy, I invite you to read one of my personal favorites-but least read-blogs, Erisa and Mom, which I try to publish every Mother’s Day). You see, what regulators are really doing are attempting to find the right balance between availability, flexibility and securing critical participant retirement rights. As automotive engineers have told me on more than one occasion (yes, I am Imported From Detroit-and have a T-shirt to prove it), every design decision is a trade-off. So for example, you can’t have the safest and most cost/fuel efficient car at the same time (imagine the Bradley fighting vehicle as the family minivan. Beside lousy fuel mileage and high operating costs, it would be hell on the road systems. But it sure would be safe in a collision).
There are a few guiding principles I would think (with the fear of being far too presumptuous, as reg writing is a skill with which I have NO experience) might apply in delving into the minutiae for solutions. For example, it may be helpful to follow Asimov’s Minimum Necessary Change concept. It could also be useful to keep in mind that not all annuity based guarantees are created equal (for example, does high water mark protection deserve the same policy treatment as guaranteed lifetime income?), nor are all annuity types suitable for retirement plans. At the same time, it is important to preserve the ability of the market to continue to develop innovative (and suitable) retirement products, and for plans to readily adopt them. Finally, if at all possible, keep it as simple as possible-as the DOL has recently been accomplishing with a measure of success.
So, with all that, here are some thoughts what some annuity regulations could look like.
Continue Reading Zen and The Art of Annuity Regulation, Part 1