There is increasing concern within the benefits community about whether employees will be able to live on their 401(k) savings in retirement. That is, will they have enough money when they retire? And will they withdraw it in a way that won’t exhaust their funds before they die? The attached paper—which was written for the Institutional Retirement Income Council (IRIC)—discusses important fiduciary considerations for evaluating a new generation of insurance products designed to address these concerns...guaranteed minimum withdrawal benefit features, or GMWBs (though the principles we discuss apply to any products with insured guarantees, including deferred annuities and guaranteed minimum income products).
The primary purpose of a GMWB feature is to provide participants with a minimum guaranteed income for their lives (or jointly with the life of the spouse), regardless of fluctuations in the market value of their accounts, and regardless of how long they live, provided they observe the feature’s requirements related to type of investment, withdrawal rate and payment of the premium for the product. At the same time, it provides the participant with flexibility by leaving him or her in control of the account balance.
The decision to offer an investment with a GMWB feature in a 401(k) plan is a fiduciary one. Not all GMWBs are the same. For this reason, before offering GMWBs, fiduciaries should engage in a prudent process to assess whether to offer such a feature and if so, which one to offer.
The attached paper discusses the legal standards governing a fiduciary’s decision to offer a GMWB, particularly in choosing the insurance carrier that offers the feature. It provides fiduciaries with a starting point for that process.
If you are interested in knowing more about the IRIC and lifetime income, visit www.iricouncil.org.
Disclaimer Required by IRS Rules of Practice:
Any discussion of tax matters contained herein is not intended or written to be used, and cannot be used, for the purpose of avoiding any penalties that may be imposed under Federal tax laws.