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Partial annuities included in proposed rules for lifetime income options


WASHINGTON—Providing partial annuities and reducing restrictions on so-called deferred longevity annuities were parts of proposed regulations on lifetime income options in retirement plans announced Thursday by the Treasury Department.

One proposal would “make it simpler for defined benefit pension plans to offer combinations of lifetime income and a single-sum cash payment,” according to a Treasury Department news release.

“This is designed to encourage more retirees to consider partial annuities, which allow for retirees to receive a steady stream of income for the duration of their lifetimes while also keeping a portion of their savings invested in assets with the flexibility to respond to liquidity needs,” the news release said.

The Treasury Department also proposed a regulation that it said would remove a regulatory roadblock to purchasing a deferred longevity annuity. The proposal “would provide an efficient way for 65- or 70-year-olds—or even younger savers—to address the risk of outliving their assets by purchasing a predictable income stream starting at age 80 or 85,” the news release said.

The Treasury Department also said the Internal Revenue Service has issued revenue rulings on plan rollovers and annuities as well as on spousal protection provisions in 401(k) plan deferred annuities.

One ruling “clarifies how the rules apply when employees are given the option to use a single-sum 401(k) payout to obtain a low-cost annuity from their employer's defined benefit pension plan,” the news release said.

“The second ruling clarifies that employers can offer their employees the option to use 401(k) savings to purchase deferred annuities and still satisfy spousal protection rules with minimal administrative burdens,” the news release said.

The proposals “will reduce regulatory burdens and make it easier for retirees to choose to receive their benefits as a stream of income in regular payments for as long as they live,” according to the news release.

The proposals are based on public comments in response to requests for information in 2010 from the departments of Treasury and Labor about lifetime income options.

A spokesman for Treasury could not provide further details. A PDF fact sheet of the proposals is available from the Treasury Department.

Robert Steyer is a reporter for Pensions & Investments, a sister publication of Business Insurance.