Washington Helps Retirement Plan Quest for Secure Income

Jennifer DeLong: Andrew, there’s been a lot of momentum in Washington the past couple of years, and certainly this year, in support of retirement enhancements to the US retirement system. And in fact, there have actually been quite a few provisions related to lifetime income. Retirement income as a whole has really become quite the hot topic. Can you tell me a little bit about what’s going on in Washington and why we think it’s so important?

Andrew Stumacher: The SECURE Act really is the major piece of legislation. And there [are] really three components to it: the first being safe harbor for fiduciaries who choose to include an annuity within their retirement plan. And there’s been regulation out there for this process. But parts of it are a bit vague, and what the SECURE Act aims to do is really clarify the third component of that. So, I’ll just review those components quickly: The first one being [that] plan sponsors need to do an objective and thorough search for a provider. The second one being that they have to make sure the cost of the solution [is] appropriate for the benefit of the solution. And the third—which is the one that’s a bit vague and hard for a plan sponsor to fully evaluate—is whether or not that annuity provider will be able to make good on any payments for many years out into the future.

What the SECURE Act says is basically, if the insurer and the state that issues the insured the ability to do business in that state are comfortable that they can meet that provision, then you as a plan sponsor have fulfilled your duty in evaluating that annuity provider. So that really sums up the safe harbor for annuity providers. But portability, as you know, is one of the major ones as well. And think about how unfair it would be for a participant who paid for a benefit for many years and wouldn’t be able to take it with them.

JD: So what does the SECURE Act have—

AS: It allows essentially a distributed annuity from the plan, or the ability to roll your benefit over into an IRA, even if you haven’t had a qualifying separation of service or a reason where you could normally take a distribution from your retirement plan.

JD: So if for example the plan sponsor decides to no longer offer that option, as a participant I’m not losing out on what I’ve paid for in terms of an insurance benefit.

AS: That’s exactly right.

JD: Got it. And I know the third piece—providing lifetime income disclosures to participants. I think that one’s pretty important. Can you tell me a little bit about that?

AS: What this mandates is that every participant disclosure statement will have to show both your accumulated savings and what that will convert to as income under certain assumptions provided by the DOL at retirement. And again, that’s to get participants to focus on a number and say, “Is that number going to be enough for me?” And get me to save more if it’s not.

JD: We do know that the biggest thing that drives success in terms of having enough money for retirement is certainly getting participants to save more and at a much younger age. So, I think that’s going to be a really important provision that hopefully we will see go through this year.