American Academy of Actuaries Encourages In-Plan Lifetime Income Options

The retirement security of millions of Americans participating in employer-sponsored defined contribution (DC) plans would be improved by providing more options supporting secure lifetime income within those plans, the American Academy of Actuaries said in a position statement. 

“Retiring DC plan participants currently have few tools to efficiently manage their account balances for a long and secure retirement. Adding lifetime income options to these plans—supported by appropriate laws, regulations, and educational initiatives—will enhance the financial well-being and security of the next generation of retirees,” says Academy President-Elect and Chairperson of the Academy’s Public Interest Committee Stephen Alpert.

Annuitization and structured withdrawal programs are just two examples of the types of options cited by the Academy that could be included in DC plans to help mitigate risks to retirees by providing them with more predictable income than a lump-sum or unstructured or self-managed withdrawal approach.

The Academy is using the release of the position statement to kick off a campaign to educate public policymakers, employer organizations and other stakeholders in the retirement policy space about the benefits of establishing retirement income options within DC plans.

“Safe harbors, enabling legislation, and other regulations are needed to cover areas such as selecting providers, developing solutions, educating employees, and implementing income strategies to minimize plan sponsor fiduciary concerns,” the position statement says. “Providers and employers will need to partner to develop appropriate solutions and educate employees about the options and opportunities available to them.”

The Academy is not the only entity advocating for in-plan lifetime income solutions. The Government Accountability Office (GAO) provided recommendations to the Department of Labor (DOL) to address plan sponsor concerns about offering lifetime income options in their plans, including that it clarify the criteria to be used by plan sponsors to select an annuity provider.

Just last week, the U.S. Treasury Department called for the creation of an annuity oversight bureau to assess the viability of annuity providers, so retirement plan sponsors would be more inclined to offer in-plan guaranteed lifetime income options. While the Department of Labor (DOL) issued a safe harbor rule in 2008 with respect to annuities, saying that employers who “appropriately” consider “sufficient” information as to whether the annuity provider will be able to make payments under the annuity contract will be protected from legal liability in the case that the insurer becomes insolvent, the Treasury says the terms are not clearly defined—and that the safe harbor still requires employers to consider whether the provider will be solvent decades into the future. Thus, Treasury says, “many employers and their professional advisers are not comfortable relying on the safe harbor.”