Recent market declines have spurred demand for products within 401(k) plans that can mitigate investment and longevity risks by offering a guaranteed income feature.

In this regard, the Department of Labor and the Treasury Department have publisshed a joint request for public input on how to facilitate the use of annuities in employersponsored retirement plans. The annuities in question might be fixed or variable and could provide a variety of traditional or more modern guaranteed income or withdrawal benefits.

Historically, annuities have suffered from certain disadvantages in the 401(k) context, including:

Administrative complexities, such as complying with joint and survivor annuity requirements;  

Potential fiduciary liability for sponsors who select an annuity for use in their plan;  

Lack of “portability” of certain guaranteed income or withdrawal benefits, if the employee wants to “rollover” into another plan; and  

The challenge of adequately informing employees concerning the complexities of many annuity products.  

One idea is to provide plan sponsors with additional “safe harbor” relief for plan sponsors who select annuities. (This would perhaps expand upon certain limited safe harbor relief that the Department of Labor issued in 1995 for the selection of annuity providers by fiduciaries.)  

On the legislative front, The Lifetime Income Disclosure Act has been introduced in the Senate, which would require 401(k) and other defined contribution plans under ERISA to disclose annually to plan participants how much income they could expect in retirement if they rolled their plan assets into an annuity product. This information would hopefully encourage plan participants to save more and move their savings into annuities offering guaranteed income streams. Additionally, proposed legislation in the House and Senate would, if adopted, incentivize employees to annuitize a portion of their retirement assets by offering a 50 percent tax exclusion annually on up to a specified amount of lifetime annuity payments.