A rumor I regularly am asked about is that the government is going to require all IRAs and 401(k)s to be invested annuities. Some versions of the rumor go further and say the proposal is to confiscate all these accounts and invest them in annuities or even Social Security.
Here’s the real proposal.
The Labor and Treasury Departments (which jointly regulate retirement accounts) asked for comments on the idea of requiring IRAs and 401(k)s to offer some kind of lifetime income options (meaning annuities). They received written comments from the public and also held a public hearing on Sept. 14. There was no specific proposal or proposed regulations from the government, but the idea was to encourage retirees to take a safe route by requiring that an income option be available. Initially at least it would be it up to employees to choose it or not and decide how much of their accounts to invest that way.
The response to the proposal was overwhelmingly negative from both individuals and most employer retirement plan sponsors. Even insurance groups, that I would expect to support it, were neutral. The biggest supporters were AARP and the AFL-CIO.
At the public hearing, leading government officials seemed to back away from the idea of requiring an annuity option, according to Pensions & Investments magazine. In their comments at the hearing they emphasized the importance of education, employee choice, and working with employers to encourage people to choose lifetime income options.
Employers questioned how they would select the annuity, what terms it would be required to have, and why other income-oriented investments wouldn’t be allowed instead of annuities. They also worried about their responsibility if the insurer backing the annuity failed.
The government doesn’t have a timetable. At some point it will announce its next step, which could range from doing nothing to issuing regulations.
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