Annuities in Retirement Plans

Last Thursday, the Treasury Department released a proposal that would make it possible for individuals to buy “longevity” annuities using a portion of employer-sponsored retirement plan savings. A separate proposal would allow partial annuity options for traditional pension plans. A ruling issued last Thursday contained clarifications on how protections for employers and their spouses apply to annuities in retirement plans. Issues addressed in the new proposals are below:

• When calculating required withdraws, the new proposal would disregard annuities costing no more than 25% of the account balance (with a $100,000 cap) that begin by age 85.
• The proposal would make it easier for plans to offer both cash and traditional pensions by streamlining the calculation of a partial annuity.
• According to a revenue ruling, a spousal consent is not required until an annuity begins, at which point it is handled by the annuity’s issuer.
• The proposal also addresses new products, like ING’s “lifetime-income protection” program, that gradually transfer employer savings into annuities prior to retirement.

See Kelly Green, Annuitizing Your 401(k), Wall Street Journal, Feb. 4, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.