The Pension Benefit Guaranty Corporation (PBGC) is touting a proposal that would add the option for 401(k) and other defined contribution plan participants to elect at time of distribution to have the balance of their 401(k) plan account converted to traditional pensions.
Under proposed rules slated for publication in the April 2, 2014 Federal Register, the PBGC plans to define rules under which the defined contribution plans could offer employees with rollover options the opportunity to move their benefits from defined contribution plans to defined benefit plans and outline safeguards for benefits that are rolled over from defined contribution plans.
Under the new proposal, benefits earned from a rollover generally would not be affected by PBGC’s maximum guarantee limits. Currently the agency’s maximum guaranteed benefit for a 65-year-old retiree is almost $59,320 a year.
Also, rollover amounts generally would remain untouched by PBGC’s so-called five-year phase-in limits. Normally, benefit increases from changes to a plan in the five years before it ends are partially guaranteed. For instance, 20 percent of the increase is paid after one year, 40 percent after two years and so on. Under the new proposal, these restrictions generally would not apply
The PBGC proposal to allow defined contribution participants to convert their account balances into lifetime annuities at distribution reflects the general enthusiasm within the PBGC, the Employee Benefit Security Administration (EBSA) and other agencies for arrangements that annuitize defined contribution accounts that provides a guaranteed fixed income for the participant for the balance of his or her lifetime. In its April 1, 2014 announcement of impending publication of the proposed rule, the PBGC touts its proposal as making it “easier for participants in 401(k) plans to get higher returns and get lifetime income” by moving their funds into traditional pensions while removing “the fear that the amounts rolled over would suffer under guarantee limits should PBGC step in and pay benefits.”
“What we’re doing will hopefully give people an incentive to choose a savings option that they can’t outlive or outspend,” said PBGC Director Josh Gotbaum. “Annuities always offer greater retirement security.”
In the wake of the massive decline in retirement savings that came with scandals like Enron and Madoff and the economic downturn have fueled new support among the PBGC and other supporters of “lifetime income” arrangements, critics warn that the annuitizing an account to provide lifetime benefits in a low performing market is costly and cuts the recipient out of the opportunity to benefit if and when the market strengthens. They also warn that market downturns also can adversely affect the security of annuitized products. The notorious failures of the insurers providing “guaranteed investment income” in the 1980s led to the demise of GICs just as the real estate bust necessitated a government bailout to keep AIG and other insurers afloat. The PBGC and other advocates hope that their proposed standards for lifetime income accounts can produce the benefits of a lifetime income with little risk to the recipients.
For Representation, Training & Other Resources
If you need assistance monitoring these and other regulatory policy, enforcement, litigation or other developments, or to review or respond to these or other workforce, benefits and compensation, performance and risk management, compliance, enforcement or management concerns, the author of this update, attorney Cynthia Marcotte Stamer may be able to help.
Board Certified in Labor & Employment Law, Past Chair of the ABA RPTE Employee Benefit & Other Compensation Arrangements Group, Co-Chair and Past Chair of the ABA RPTE Welfare Plan Committee, Vice Chair of the ABA TIPS Employee Benefit Plans Committee, Vice President of the North Texas Health Care Compliance Professionals Association, Past Chair of the ABA Health Law Section Managed Care & Insurance Section and the former Board Compliance Chair of the National Kidney Foundation of North Texas, Ms. Stamer has more than 25 years’ experience advising health plan and employee benefit, insurance, financial services, employer and health industry clients about these and other matters. Ms. Stamer has extensive experience advising and assisting health care providers, health plans, their business associates and other health industry clients to establish and administer medical privacy and other compliance and risk management policies, to health care industry investigation, enforcement and other compliance, public policy, regulatory, staffing, and other operations and risk management concerns. The scribe for the ABA JCEB Annual Agency Meeting with the Office of Civil Rights (OCR) for the past several years who has worked on medical and other privacy concerns throughout her career, she regularly designs and presents HIPAA and other risk management, compliance and other training for health plans, employers, health care providers, professional associations and others, defends covered entities and business associates against OCR, FTC and other privacy and data security investigations, serves as special counsel in litigation arising from these concerns and is the author of several highly regarded publications on HIPAA and other privacy and security concerns.
Ms. Stamer also regularly works with OCR, FTC, USSS, FBI and state and local law enforcement on privacy, data security, health care, benefits and insurance and other matters, publishes and speaks extensively on medical and other privacy and data security, health and managed care industry regulatory, staffing and human resources, compensation and benefits, technology, public policy, reimbursement and other operations and risk management concerns. Her publications and insights appear in the Health Care Compliance Association, Atlantic Information Service, Bureau of National Affairs, World At Work, The Wall Street Journal, Business Insurance, the Dallas Morning News, Modern Health Care, Managed Healthcare, Health Leaders, and a many other national and local publications. For instance, Ms. Stamer for the third year will serve as the appointed scribe for the ABA Joint Committee on Employee Benefits Agency meeting with OCR. Her insights on HIPAA risk management and compliance frequently appear in medical privacy related publications of a broad range of health care, health plan and other industry publications Among others, she has conducted privacy training for the Association of State & Territorial Health Plans (ASTHO), the Los Angeles Health Department, the American Bar Association, the Health Care Compliance Association, a multitude of health industry, health plan, insurance and financial services, education, employer employee benefit and other clients, trade and professional associations and others. You can get more information about her HIPAA and other experience here.
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