Lifetime income is the Holy Grail of the financial services industry, with the Government Accountability Office acting as Sir Robin. Noting that “concerns about legal risks and record keeper constraints may deter many plan sponsors …from offering lifetime income options,” the agency made seven recommendations to the DOL in order to help 401(k) participants secure lifetime income through easier access to annuities.
“As 401(k) plan participants reach retirement they face the challenge of making their savings last for an unknown lifespan, and many 401(k) plan sponsors do not offer options to help participants with this complex task,” according to the report. “GAO was asked to review any related challenges and potential changes to help plan sponsors and participants.”
The recommendations are:
- The DOL should clarify the criteria to be used by plan sponsors to select an annuity provider;
- It should consider providing limited liability relief for offering an appropriate mix of lifetime income options;
- Issue guidance to encourage plan sponsors to select a record keeper that offers annuities from other providers;
- Encourage plan sponsors to consider providing RMD-based default lifetime income to retirees;
- Encourage plan sponsors to include participant access to advice on the plan’s lifetime income options from an expert in retirement income strategies;
- Encourage plan sponsors to consider whether a contract with a service provider ensures future service provider changes do not cause participants to lose the value of their lifetime income guarantees;
- Encourage plan sponsors to offer participants the option to partially annuitize their account balance by allowing them the ability to purchase the amount of guaranteed lifetime income most appropriate for them.
According to the GAO, the DOL generally agreed, and described actions it would take to address the intent of the recommendations.