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Government Still Working on Regulations for Longevity Annuities in 401k Plans


It’s been well over a year since the Treasury Department made a proposal that would make it easier for people to buy annuities with their 401k or IRA money.  They sent out a request for information from many in the industry and then made their proposal.  A lot of you might have forgotten about this and thought that it just went by the wayside like many other government plans.  But that is not so.  According to Marketwatch’s “Uncle Sam wants you – to buy annuities,” Anne Tergesen says that the government is still working hard on their proposal and believes strongly that it is in the best interest of Americans’ future retirement financing.

The proposal offers IRS special relief to people who use part of their 401k or IRA to purchase a longevity annuity.  These particular annuities delay payments until you are 80 years old or so, so they are a low cost way to ensure that you continue receiving retirement income late in your life and don’t run out of money.  The IRS currently requires those who have retirement plans to withdraw taxable income starting at age 70 1/2.  The special relief proposed allows you to be exempt from this rule for the portion of money that you transfer to a 401k longevity annuity.  You can use 25% of your retirement account balance, up to $100,000 a person, to purchase your annuity product and use this special IRS relief.

J. Mark Iwry of the Treasury Department answered some questions in the article to let Americans know where the legislation stands and what they hope it will look like.  He says that the legislation is very alive and that there is work being done is by direct request from comments they received after introducing the proposal.  Public comments were taken into consideration as well as comments from the hearing that was had on the subject.  In addition to the previously mentioned rule about the account balance limits, consumers have to start taking withdrawals by age 85.  Those who are retiring in their 60’s are at serious risk of running out of money in their old age.  Buying a longevity annuity to carry you through the final retirement years eliminates the fear many older Americans have of running out of money.

These legislations do not directly address the fiduciary concerns some employers have, but Mr. Iwry says that the Labor Department has been working on these ERISA concerns.  Death benefits are a big concern to many Americans, especially when they are looking to purchase a longevity annuity.  The current legislation calls for a death benefit to your heirs that is a life annuity.  Many of the comments received asked for a lump sum return of premium death benefit option.  They are looking into such an option, but want to make sure that it doesn’t take away from the benefits provided by reducing the payments by too much.  This legislation is certainly not the only work being done in regards to 401k and lifetime income.  One such example is the Labor Department’s plans to have a listing on 401k statements with the balance’s equivalent lifetime income stream.

Written by Rachel Summit

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