Lifetime annuity may become new payout option for 401(k)

Sunday 05 September

It's still hard for a lot of investors not to be skeptical about the ongoing stock market rally, now entering its ninth month. But there's one thing for certain: Market volatility has decreased even as stocks have advanced. The VIX equity volatility index, a favored "fear gauge" for the stock market, settled at 22.84 on Nov. 10, down from 30.0 just a week earlier and over 80 at the height of the market panic in November 2008.

Lifetime annuity may become new payout option for 401(k) - Columbus Dispatch

BOSTON - Some folks want 'em. Some don't. That's the upshot of the 600-plus letters the U.S. Labor and Treasury departments received in response to a request for information about including income annuities as a payout option for 401(k) plans.

But there's clearly no consensus on what is certain to become a political hot potato.

In February, the Labor and Treasury departments began soliciting public comments to help determine what steps to take "to enhance retirement security" for workers in 401(k) and other employer-sponsored retirement plans "through lifetime annuities or other arrangements that provide a stream of income after retiring."

The government sought comments on a broad range of topics, including:

• The advantages and disadvantages for both workers and employers of distributing retirement savings as a lifetime stream of income, and why lump-sum distributions are chosen more often than lifetime-income options.

• The type of information participants need to make informed decisions in selecting how to receive their retirement savings.

• Disclosure of participants' retirement income in the form of account balances as well as in the form of lifetime streams of payment.

What's the likely outcome after the Labor and Treasury departments sift through the 600-plus letters? Some experts see two things happening: First, regulators and lawmakers probably will make lifetime-income annuities a distribution option, as they are in other countries, and second, they might tie lifetime-income annuities to the existing qualified default investment alternatives, or QDIAs for short.

According to the experts, there's no harm in offering a plan participant the option of taking a lifetime-income annuity, especially if the worker truly understands the risks and benefits of not just that option but all the other distribution options. Today, workers in typical 401(k) plans are given these options when they leave a plan: take the money out, roll some or all of it into an IRA, or leave it in their former employer's 401(k) plan.

In the brave new world, workers would have an additional option: invest some, although probably not all, of their 401(k) money in a lifetime-income annuity.