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Newsmakers

Bipartisan House Bill Would Allow Annuities as 401(k) Default Options

Separate bicameral proposed legislation aims to boost auto-enrollment retirement plan participation.
By Michael Katz



Lawmakers have introduced two separate bills aimed at bolstering retirement savings: one would allow plan sponsors to provide annuities as a default option in defined contribution plans, and the other aims to increase retirement plan participation among workers. 

Reps. Donald Norcross, D-New Jersey, and Tim Walberg, R-Michigan, have reintroduced the Lifetime Income for Employees Act of 2022, which would allow retirement plan sponsors to provide annuities as a default option in their DC plans. 

The proposed legislation includes provisions that require plan sponsors to provide participants with information about what annuities are, how they work, and how they can obtain additional information about their investment alternatives. Additionally, plan sponsors would not be allowed to allocate to the annuity contract more than 50% of any periodic contribution, or 50% of the value of the assets of the account immediately after a rebalancing of investments.

“The number of private-sector workers receiving lifetime benefits from a traditional defined benefits pension plan has declined from 60% in the 1980s to only 4% today,” Norcross said in a statement. “By creating ‘individual pensions,’ this legislation will provide hard-working Americans with a guaranteed income.”

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A recent report from the nonprofit National Institute on Retirement Security said that although annuities “tend to be expensive” due to low interest rates, insurer profits, and marketing and administrative costs, “the greatest potential for improving the DC plan experience for participants lies in figuring out a safe and economically efficient means of generating post-retirement income.”

The bill has been endorsed by the American Council of Life Insurers, whose President and CEO Susan Neely said in statement that “Amending the current rules for qualified default investment alternatives to facilitate the use of an annuity component will expand the availability of guaranteed returns and guaranteed lifetime income.”

Meanwhile, Sen. Tim Kaine, D-Virginia, and Rep. Kathy Manning, D-North Carolina, introduced the Auto Reenroll Act of 2022, which is intended to help increase workers’ participation in employer-sponsored retirement plans by encouraging retirement plans to automatically re-enroll workers. It is intended to increase auto-enrollment participation by amending safe harbors in the Employee Retirement Income Security Act and the Internal Revenue Code to encourage plan sponsors to re-enroll non-participants at least once every three years, unless they choose to opt out again.

The bill’s sponsors say the legislation aims to get workers who originally opted out of being automatically enrolled in their employer’s retirement plan to reconsider and opt in. They cite data from the Bureau of Labor Statistics that show that only 51% of private sector workers participate in employer-sponsored retirement plans, and say the bill would lead to more workers benefiting from employer matches.

“Nearly half of all private sector workers are missing out on the benefits of their employer-sponsored retirement plan and employer matching contributions,” Manning said in a statement. “The years that employees are working without earning these savings could have a large impact on their retirement.”

Related Stories:

BlackRock Launches Service to Include Annuities in 401(k) Plans

Fidelity, State Street Offer Retirement Plans With Income Streams

Why People Don’t Buy Annuities: They’re Confusing.

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Home > News > Newsmakers > Market Edges Up in Reaction to Powell’s More Aggressive Stance
Newsmakers

Market Edges Up in Reaction to Powell’s More Aggressive Stance

Fed chief says he’s looking at a half-point boost soon and indicates a quicker tightening tempo.
By Larry Light

Federal Reserve Chairman Jerome Powell has arguably a bigger bully pulpit than does the U.S. president. His Monday speech sounding a more hawkish tone than usual has been greeted with acceptance and perhaps a measure of glee in the stock market.

Powell’s remarks yesterday before the National Association of Business Economics was followed by a slight market dip (the S&P 500 lost just 0.04% yesterday) and a more positive response this morning (ahead 0.81%).  

Time was that talk of Fed hikes sent the market skidding, as investors were used to easy money. The onset of higher inflation has altered the landscape, however, and now the spiraling prices are viewed as a threat.  The next release of the Consumer Price Index is slated for April 12, covering March. February’s CPI rise was a disconcerting 7.9%.

Powell’s address raised the possibility of hiking its target federal funds rate by a half percentage point at its policymaking panel’s next meeting, May 3-4. During its March gathering, the rate was boosted just a quarter point, from near zero.

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Another part of his speech drew notice, when he substituted the word “expeditiously,” regarding the pace of Fed increases, in place of his customary descriptive term “steadily.”

That wording change and Powell’s tone prompted Wall Street strategists to conclude that the Fed will proceed more rapidly with its tightening campaign than it did the last time it lifted rates. As Jan Reid, Deutsche Bank’s global head of thematic research, wrote, “this is going to be a very different hiking cycle from its predecessor back in 2015.” Back then, the Fed lifted the target rate just once, followed by another single increase in 2016.

“Our best guess is that the shift in wording from ‘steadily’ in January to ‘expeditiously’ today is a signal that a 50bp rate hike is coming,” wrote Goldman Sachs Chief Economist Jan Hatzius in an investor note. “We now forecast 50bp hikes at both the May and June meetings, followed by 25bp hikes at the four remaining meetings in the back half of 2022 and three quarterly hikes in 2023Q1-Q3.”

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