On February 2, 2010, the Department of Labor and the Department of Treasury (the “Agencies”) issued a Request for Information (“RFI”) to determine whether the Agencies should amend ERISA and the plan qualification rules under the Internal Revenue Code (the “Code”) to facilitate the use of lifetime income options in order to ensure a lifetime stream of income after retirement. The RFI, which contains thirty-nine (39) questions, is designed to solicit views, suggestions and comments from plan participants, employers and other plan sponsors, plan service providers, members of the financial community and the general public.
All interested parties can submit comments to either Agency on or before May 3, 2010.
In support of the need for lifetime income options, the RFI indicates that employers that sponsor defined benefit pension plans (1) are responsible for making contributions to the plan that are sufficient to fund the promised retirement benefits and (2) bear 100% of the investment risk. Further, defined benefit pension plan pay the retirement benefit in the form of a lifetime annuity, thereby protecting the plan participant from outliving his or her retirement benefits. In contrast, participants in defined contribution plans, such as 401(k) plans, bear the investment risk and there is no guarantee of any account balance or any income stream at retirement. Further, defined contribution plans typically only make lump-sum distributions at retirement.
Because so many employers are moving away from defined benefit pension plans towards defined contribution plans and because many employees are receiving their retirement plan benefits in a lump-sum distribution, the RFI indicates that the individual participant becomes solely responsible for ensuring that any retirement plan distribution lasts the length of his or her retirement. Recognizing these issues, the Agencies are seeking comments regarding whether they should take steps to facilitate the access to, and the use of, lifetime income options or other options that are designed to provide a stream of income at retirement in defined contribution plans.