By Nick Thornton
The Department of Treasury recently took a significant step in addressing the realities of longevity risk in retirement by issuing final rules on deferred income annuities.
But much more remains to be done by both government and industry, according to the Defined Contribution Institutional Investment Association.
“While DCIIA enthusiastically supports the commitment of both the Departments of Treasury and Labor in encouraging more robust and broad-based adoption of lifetime income solutions in U.S. retirement plans, there is still more work to do,” the association said in a statement.
“There is a real need for innovation in the development of new products and solutions to manage longevity risk.”
Increased life expectancy presents a big challenge to retiring baby boomers: how not to outlive their savings.
The recently announced final rules make the deferred-income option more available to 401(k)
and IRA markets.
Under the final rules, participants in qualified retirement plans, or owners of individual accounts, can use 25 percent of their account balance, up to $125,000, to purchase a longevity annuity. The money in the annuity is exempted from the minimum distributions required from 401(k)s and IRAs after age 70 ½.
DCIIA is calling on Treasury and the DOL to provide additional regulatory guidance that will make it easier to implement lifetime income solutions into plans, and to remove areas of regulatory uncertainty that could inhibit the innovation of new lifetime income solutions.
Specifically, regulators should not rely on “safe harbor” solutions that can have the unintended consequence of stifling new products for fear that they will be perceived as “un-safe,” says the DCIIA.
“A regulatory approach that includes a combination of thoughtful safe harbors and flexible examples can go a long way in driving home continued regulatory support for plan sponsor innovation,” it said.
The responsibility of addressing longevity risk is shared by the defined contribution industry, DCIIA said.
It called on sponsors, advisors, service providers, consultants and insurance companies to “embrace the message behind these new regulations, and to move toward more widespread adoption of additional tools” to address longevity risk in retirement.
Originally published on BenefitsPro.com