Treasury set to offer guidance on income products

Aiming to curb the number of individuals who are likely to outlive their retirement savings, the Treasury Department soon will offer guidance on lifetime income options that 401(k) plan participants should have available when they retire.

J. Mark Iwry, deputy assistant Treasury secretary for retirement and health policy, said that the department will issue administrative guidance “very shortly” on annuities and other options that would offer retirees a flow of income rather than a lump sum. He declined to give specifics.

“It will seek to encourage not just annuities, but income streams generally,” Mr. Iwry told advisers and plan providers at this year’s SPARK national conference in Washington last week. “It will not favor one type over another.”

The Treasury Department and the Labor Department requested comments on the issue of lifetime income in February 2010; about 800 groups and individuals offered thoughts.

The Labor Department is still considering what steps it can take “to encourage the offering of lifetime income options to participants and beneficiaries of defined-contribution plans,” said Phyllis C. Borzi, assistant Labor secretary for employee benefits security.

“We anticipate issuing our first set of relevant guidance or rules in this area later this year,” she said.

The Labor Department’s first proposed rules are expected to show how a potential income stream from an account balance should be illustrated in a participant’s pension benefit statement.

In September, the government also hosted a hearing where insurers urged for the expansion of “safe harbor” rules for the plan sponsors that select annuities. Those rules would protect employers from fiduciary liability with respect to insurers’ future financial condition, as long as the plan sponsor met certain requirements when choosing the provider.

The Obama administration wants to “make options for income more attractive than lump sums,” Mr. Iwry said.

The guidance will address how to make it easier for plan sponsors to have annuities as options in their plans. Additionally, it will address income options offered by financial institutions that don’t guarantee income for life, but rather a stream of income with a high probability of continuing, Mr. Iwry said.

The guidance will address simpler forms of income streams at the outset and then ask for additional input on more-sophisticated features and products, he said.

The goal is to provide a range of “features that help people manage the financial risk of retirement,” Mr. Iwry said.

An estimated 47% of Americans born between 1948 and 1954 may not be able to afford basic expenses and uninsured health care costs through retirement, according to the Employee Benefit Research Institute.

E-mail Liz Skinner at [email protected].