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The Department of Treasury Loves Annuities

Annuity 123 logoThis week the Treasury Department announced  a new regulatory proposal that would encourage lifetime income options in retirement plans such annuities.  A couple of main points were discussed in this new proposal.   The first would allow current participants in defined benefit plans (for the small percentage of consumers that still have DB plans) to take their retirement savings in the form of an annuity plus a lump sum.  Currently, the rules state that it is only one or the other. The second point would make it easier for workers to buy longevity insurance in their retirement plan.  Longevity Insurance is an annuity that doesn’t begin paying out until the owner is at an advanced age and is basically a form of an annuity

As you can imagine, the Insurance industry cheered the Treasury’s decision.  However, there is a long way to go before employees and plan sponsors could make these features a regular part of their retirement plans. A few obvious issues that they will have to iron out will be the education for consumers on why they should now defer taking some of their paycheck and put it into one of these longevity annuities.  And finally, due to the fact the average American switches jobs 7-9 times these days, there will have to be an effective system for consumers to roll their “annuity” to the next employer seamlessly.  But regardless, it should be a good thing for consumers.

 

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