(Bloomberg News) The U.S. Treasury Department will help expand the availability of annuities and lifetime income choices in retirement plans, the agency said today.
The department proposed two regulations to make it easier for those approaching retirement to buy an annuity through their company-funded pensions or 401(k) savings accounts. Annuities are insurance contracts that guarantee a lifetime stream of income in exchange for up-front payments.
"When American workers take the responsible step of saving for retirement, we should do all we can to provide them with sensible, accessible choices for managing their hard-earned savings," Treasury Secretary Timothy F. Geithner said in a statement today. "Having the ability to choose from expanded options will help retirees and their families achieve both greater value and security."
U.S. savers held about $2.9 trillion in 401(k) accounts and a total $17 trillion in retirement savings as of Sept. 30, according to the Investment Company Institute, a Washington-based trade group for the mutual-fund industry.
Regulators and legislators have been looking at Americans' retirement security because life expectancies are increasing and savings have shifted from traditional pension plans -- where employers generally provided retired employees with lifetime payments -- to defined-contribution plans such as 401(k)s. Participants in 401(k)-type plans increased to 67 million in 2007 from about 11 million in 1975, the Labor Department said at a hearing on lifetime income in September 2010.
Reluctant Employers
Employers have been reluctant to adopt annuities in retirement plans they sponsor because of concern that fees are too high and that they would be held liable for their choice of insurers. Americans have resisted buying the insurance because they don't want to lock up their assets.
The Treasury Department's proposed regulation will make it simpler for traditional pension plans to let workers take part of their balances as lifetime income streams and take the rest as lump sums.
The other proposed rule would encourage 401(k) and IRA plans to offer participants the option of dedicating part of their savings to a so-called longevity annuity, which may not begin the guaranteed income payouts until age 80 or 85, the Treasury Department said. The agency said it would grant an exception to required minimum distributions from retirement accounts in certain cases.
Asset managers and insurers including BlackRock Inc., State Street Corp., Prudential Financial Inc., MetLife Inc. and ING Groep NV have been developing ways to add annuities and lifetime income to 401(k) investment choices.