Oh those retirement benefits! In many employer-sponsored retirement plans, particularly defined contribution plans, the benefits are payable in the form of a single lump sum payment. The problem? The participant takes the lump sum-the participant’s entire benefit under the plan-and spends it early, so that he or she has none of the money left for the rest of his or her retirement. One proposed solution is a “life income option”. Under this option, the plan, generally through the purchase of an annuity contract, will pay the retirement benefit periodically (normally monthly) for the remainder of the participant’s life. This way, the participant cannot outlive the benefit.
But the life income option raises a number of concerns. Accordingly, in a Press Release dated August 5, 2010, the Department of Labor (the “DOL”) and the Treasury Department will hold a joint public hearing on Sept. 14, 2010, and if necessary on Sept. 15, to hear testimony on several specific issues relating to the life income option and other arrangements that provide a stream of income after retirement for workers participating in employer-sponsored retirement plans.
The Press Release notes that the DOL received approximately 780 public comments in response to the request for information (RFI) on the life income option published in the Feb. 2, 2010 Federal Register. The purpose of the hearing is to gather additional information on discrete technical issues and proposals raised in RFI submissions. The Press Release contains details for those who wish to speak at the hearing.
Witnesses at the hearing will address issues relating to:
–certain specific participant concerns affecting the choice of lifetime income relative to other options;
–information to help participants make choices on the management and spend down of retirement benefits;
–disclosure of account balances as monthly income streams;
–the fiduciary safe harbor for selection of lifetime income issuers or products; and
–alternative designs of in-plan and distribution lifetime income options.