Government requests information on using annuities in 401(k)s

The Labor and Treasury department have put out a request for information on the use of annuities in defined-contribution plans.

Both agencies are reviewing the Employment Retirement Income Security Act of 1974, as well as the plan qualification rules in the Internal Revenue Code, on using annuities in retirement plans. The groups filed a request for information through the Federal Register.

Specifically, the departments want to gather comments about the advantages and disadvantages of the use of incremental payments to disburse retirement benefits. They also are seeking an explanation as to why most retirees, when faced with a choice of a lifetime-income option or a lump-sum distribution, choose the lump-sum option.

The agencies also want to know what explanations 401(k) participants need in order to make informed choices on whether a lifetime-income option or a lump sum payout would be more advantageous, and how that information should be provided.

The request for comments on incorporating annuities into DC plans has come just as talk in Washington on using such investments with 401(k)s has begun to heat up.

A fact sheet released last month by President Barack Obama’s Middle Class Task Force said that the administration would promote “the availability of annuities and other forms of guaranteed lifetime income, which transform savings into guaranteed future income, reducing the risks that retirees will outlive their savings.”

The American Council of Life Insurers, the trade association of life carriers, cheered the Labor and Treasury departments for considering the role annuities can play in retirement plans.

“The ACLI supports policies that both encourage employers to offer annuities in their retirement savings plans and encourage employees to recognize the importance of receiving a guaranteed lifetime income in retirement,” Frank Keating, the ACLI’s president and chief executive, said in a statement. “We look forward to responding to the departments’ request for information.”

E-mail Darla Mercado at [email protected].