As more 401(k) plan participants look for retirement savings options that resemble traditional pensions, the U.S. Pension Benefit Guaranty Corp. has proposed exempting DC-to-DB rollovers from maximum guarantee and five-year phase-in limits.
The agency in early April proposed regulations that would amend its rules on allocation of assets and benefits payable in terminated single-employer plans to clarify the treatment of benefits tied to a rollover distribution from a DC plan or other qualified plan, if the receiving DB plan is terminated for underfunding and taken over by PBGC. It intends to define rules under which DC plans could offer participants the right to move their benefits from a DC plan to a company’s DB plan, if it offers one.
The current PBGC maximum guaranteed coverage limit for a 65-year-old retiree is $59,320 a year, but the proposal would not include those who had rolled DC assets into a terminated plan managed by PBGC. Also, partial guarantee by PBGC of benefit increases in place in the five years before a plan ended would be waived for DC rollover funds. These restrictions pay the increases over time to eligible participants in plans managed by PBGC.
This proposed clarification of so-called Title IV treatment of rollovers is part of PBGC’s efforts to enhance retirement security by promoting lifetime income options, the agency said.
Lifetime Income Proposals on Rise
Lifetime income calculators and illustrations are gaining favor among regulators and plan sponsors as ways to help participants visualize how much they will need to save for a comfortable retirement. In May 2013, the U.S. Department of Labor’s Employee Benefits Security Administration issued an advance notice of proposed rulemaking that explained options being considered in upcoming proposed rules on lifetime income illustrations in pension benefit statements. It also solicited comments on those options or possible alternatives.
Another way that workers can mimic traditional — but now rare — monthly pension benefits is through in-plan annuities. These arrangements within their employer DC plans permit participants to make ongoing contributions toward the purchase of a future stream of retirement income payments, which are guaranteed by an insurance company. This gives a participant the ability to accumulate multiple small annuities over a career which, in the aggregate, could provide significant lifetime income, according to EBSA in its 2013 lifetime income proposal.
Because few private employer-sponsored retirement plans yet offer in-plan annuities, PBGC’s planned changes would become a way for some participants to achieve a similar result if their company had a DB plan accepting DC rollovers.
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