U.S. Representatives Donald Norcross, D-New Jersey, and Tim Walberg, R-Michigan, both members of the House Committee on Education and Labor, have reintroduced the Lifetime Income For Employees Act, known as the LIFE Act for short.
The legislation would allow annuities to be a default investment in an employer-provided 401(k), with the stated goal of supporting workers as they seek to build a steady, guaranteed income stream during retirement. Specifically, the LIFE Act addresses certain requirements in the qualified default investment alternative regulatory safe harbor that prevent some employers from being able to benefit from the safe harbor if they include annuities as part of their retirement plan’s default investment.
By making these changes, the LIFE Act builds upon the Setting Every Community Up for Retirement Enhancement Act provision that enhanced the safe harbor on which plan sponsors rely when choosing an annuity provider for their retirement plan. While the enactment of this improved safe harbor was a significant step, Norcross and Walberg say the LIFE Act will take the critical next step and ensure more savers have access to annuities.
“American workers are concerned about retirement and their concerns are not unfounded,” Norcross says. “Seven out of 10 Americans say they’re living paycheck to paycheck and 80% say they’ll need to work in retirement due to lack of savings.”
Norcross says the number of private-sector workers receiving lifetime benefits from a traditional defined benefit pension plan has declined dramatically since the 1980s. He cites his own experience as a retired electrician to note how important pensions are to workers who rely on them for their retirement.
“By creating ‘individual pensions,’ this legislation will provide hard-working Americans with a guaranteed income so they can retire with dignity,” he says.
Walberg echoes those sentiments and says he is pleased to work with Norcross on a bipartisan effort to help families achieve financial security after a lifetime of hard work.
Supporters of the LIFE Act include Thasunda Brown Duckett, CEO of TIAA. In an open letter published to recognize the reintroduction of the LIFE Act, she says annuities are vital to retirement security because they are the only products that can provide individuals with guaranteed returns and a guaranteed stream of income in retirement.
“Increasingly, retirement plan participants rely on their plan’s default product as their long-term investment strategy,” Brown Duckett says. “While many participants mistakenly believe the default option provides a guaranteed retirement income, most QDIA products do not. By amending the QDIA safe harbor, the LIFE Act will encourage more employers to adopt annuities as part of their default offering so that more Americans will be able to transition seamlessly from saving for retirement to benefiting from a guaranteed income stream when they retire.”
Ahead of potential debate and passage of the new legislation, plan sponsors and advisers are now preparing for defined contribution plan participants’ reactions to the lifetime income estimates that will be coming on their plan statements this year.
In the SECURE Act, Congress required that DC plans provide retirement plan participants with projections illustrating monthly retirement income amounts generated from their accumulated retirement savings. The Department of Labor’s interim final rule on the matter, published in September, requires that participants’ projected income be illustrated as an account balance conversion to a lifetime income annuity.