Bloomberg News

Treasury Eases Rules on Offering Annuities in Retirement Plans

February 08, 2012

Feb. 2 (Bloomberg) -- The U.S. Treasury Department will help expand the availability of annuities and lifetime income choices in retirement plans, the agency said today.

The department proposed two regulations to make it easier for those approaching retirement to buy an annuity through their company-funded pensions or 401(k) savings accounts. Annuities are insurance contracts that guarantee a lifetime stream of income in exchange for up-front payments.

“When American workers take the responsible step of saving for retirement, we should do all we can to provide them with sensible, accessible choices for managing their hard-earned savings,” Treasury Secretary Timothy F. Geithner said in a statement today. “Having the ability to choose from expanded options will help retirees and their families achieve both greater value and security.”

U.S. savers held about $2.9 trillion in 401(k) accounts and a total $17 trillion in retirement savings as of Sept. 30, according to the Investment Company Institute, a Washington- based trade group for the mutual-fund industry.

Regulators and legislators have been looking at Americans’ retirement security because life expectancies are increasing and savings have shifted from traditional pension plans -- where employers generally provided retired employees with lifetime payments -- to defined-contribution plans such as 401(k)s. Participants in 401(k)-type plans increased to 67 million in 2007 from about 11 million in 1975, the Labor Department said at a hearing on lifetime income in September 2010.

Reluctant Employers

Employers have been reluctant to adopt annuities in retirement plans they sponsor because of concern that fees are too high and that they would be held liable for their choice of insurers. Americans have resisted buying the insurance because they don’t want to lock up their assets.

The Treasury Department’s proposed regulation will make it simpler for traditional pension plans to let workers take part of their balances as lifetime income streams and take the rest as lump sums.

The other proposed rule would encourage 401(k) and IRA plans to offer participants the option of dedicating part of their savings to a so-called longevity annuity, which may not begin the guaranteed income payouts until age 80 or 85, the Treasury Department said. The agency said it would grant an exception to required minimum distributions from retirement accounts in certain cases.

Asset managers and insurers including BlackRock Inc., State Street Corp., Prudential Financial Inc., MetLife Inc. and ING Groep NV have been developing ways to add annuities and lifetime income to 401(k) investment choices.

Fee Rules Released

The Labor Department issued a separate final rule today requiring detailed disclosure of 401(k) fees so companies and their employees can see what they’re being charged. The regulation will take effect for providers of 401(k) plans by July 1, according to the statement. Workers are due to receive additional disclosures later in the year, the Labor Department said.

The disclosures may spur small employers and their workers, who generally pay higher fees for their plans than larger companies, to shop for better deals, and put pressure on providers such as mutual-fund firms and insurers to cut costs.

The rules generally will require employers to show employees the fees on each investment option per $1,000 invested, such as $10 for a fund with an expense ratio of 1 percent, so they can make comparisons and more informed choices, according to the Labor Department. Workers also will receive statements showing administrative costs charged to their individual accounts.

--Editors: Rick Levinson, Alexis Leondis.

To contact the reporters on this story: Elizabeth Ody in New York Margaret Collins in New York

To contact the editor responsible for this story: Rick Levinson at

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