#United States #Washington #Lifetime Income #SECURE Act #Actuaries

Know Your Options: Understanding Changes in Lifetime Income for Defined-Contribution Plans

Since 2019, significant changes in federal law have opened up new opportunities for retirement savings through defined-contribution plans. The American Academy of Actuaries has released an issue brief titled "Decumulation Strategies: Creating Lifetime Income from Defined Contribution Plans" which addresses these developments.

The primary goal of these legislative changes is to enhance the financial security of employees approaching retirement. With the rising concern that many may outlive their assets, Congress has taken steps to ensure that more stable and secure income options are available to workers. Maria Carnovale, the chairperson of the Academy's Defined Contribution Subcommittee, emphasized that these changes facilitate the availability of insured lifetime income options, which can be beneficial for retirees.

Under the new regulations, employers have more freedom to include various insured options in their defined-contribution plans. Examples of these options are single-premium immediate annuities, deferred income annuities, qualified longevity annuity contracts (QLACs), and guaranteed lifetime withdrawal benefits. These tools are designed to provide retirees with a steady stream of income, mitigating the fears surrounding financial uncertainty in their later years.

In addition to the newly introduced insured options, the report also highlights traditional payout approaches found in defined-contribution plans. Common distribution methods include:

• - Required minimum distributions (RMDs)
• - A fixed annual percentage withdrawal, often guided by the well-known 4% rule
• - Periodic withdrawals spread over a number of years, tailored to the retiree's needs
• - Payments adjusted based on actual account performance over the specified period

The Academy’s brief suggests that employers should consider how their current plans align with these options and whether they effectively communicate these choices to their employees. It's crucial for participants to understand their options in order to make informed decisions about their retirements.

Legislative milestones such as the Setting Every Community Up for Retirement Enhancement (SECURE) Act and its successor SECURE 2.0 have paved the way for these financial tools. By easing regulatory barriers, Congress has made it easier than ever for retirement plans to incorporate affordable, insured lifetime income products.

As the retirement landscape evolves, educating employees about these options can be vital. The American Academy of Actuaries has committed years of effort to advocate for expanded access to lifetime income choices. With the increasing prevalence of defined-contribution plans, this initiative is now more significant than ever for maintaining retirees’ financial integrity.

In conclusion, understanding the implications of these legislative changes is paramount for both employers and employees as they navigate retirement planning. By leveraging the newly available options, retirees can enhance their financial stability, ensuring their peace of mind long into the future.

For those interested in exploring these opportunities further, an executive summary of the issue brief is available, detailing additional insights into the public policy work surrounding retirement issues concluded by the Academy.

For more information, one might visit actuary.org or consult their employer’s human resources department to better understand the options that may now be available to them.