401k

Investment News reports that public officials met with retirement income industry executives at the MetLife benefits symposium in Washington.

Part of the discussion focused on the use of annuities in defined contribution pension plans such as 401ks.

Both the Obama Administration and Congress are considering ways in which Americans can become more aware of the need for guaranteed lifetime income.

Much has been written over the past couple of weeks about the Obama Administration's support of annuities.

The New York Times ran a story about the "unloved annuity getting a hug from Obama."

A handfull of federal agencies have posted a request in the Federal Register. 

The agencies are requesting information and advice on the use of annuities and other lifetime income products in employer sponsored retirement plans such as 401ks.  Comments are due May 3.

The interest stems from the prevalence of defined contribution retirement plans such as 401ks and the fact that most participants in these retirement plans distribute their savings in the form of a lump sum rather than a stream of income.

While an initial step, Senate bill 2832 could set the course for significant changes in the retirement income industry.

The bill would amend the Employee Retirement Income Security Act (ERISA) which governs defined contribution plans such as the 401k.

Plan sponsors would be required to provide plan participants with an annual statement that shows what the value of their retirement account would be in terms of guaranteed monthly payments--in other words, annuity payments.

The Obama Administration continues to make annuities and other potential sources a guaranteed income a policy priority.

As described in a recent Bloomberg article, much of the concern seems to be related to the retirement plan damage caused by the financial crisis.

While recently recovered, average 401k balances took a major hit in 2008 and early 2009.

Bloomberg reports that the U.S. Treasury and Labor Departments will ask for public comment as soon as next week on ways to promote the conversion of 401ks and IRAs into annuities.

Teresa Ghilarducci is a staunch advocate of comprehensive pension reform.  She believes that the 401k is a regressive long-term savings vehicle that leaves the vast majority of American workers unprepared for the financial realities of retirement.

In the video below, Ghilarducci makes the case for a mandatory, government-sponsored defined benefit pension system.

Members of Congress and officials from the Departments of Treasury and Labor are working on options that would provide sources of guaranteed lifetime income to participants in 401k and other pension plans.

At a high level, it is clear that the Obama Administration wants to create structures and incentives for:

An independent ratings and analysis company called BrightScope has published a list of the top 30 401k plans in the United States.

BrightScope incorporates over 200 different variables into its ratings methodology, including:

• Plan cost
• Company generosity
• Participation rates
• Salary deferrals
• Investment offerings

Source: Investment Advisor

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The Senate introduced a piece of legislation that would require retirement plan sponsors to provide plan participants with estimates of how much income their accounts will generate in retirement.

The majority of Americans approach retirement without a basic financial plan and with resources that are not sufficient for support of pre-retirement spending and lifestyles.

The Lifetime Income Disclosure Act would provide Americans with a clear picture of the income-producing potential of their accumulated retirement assets.