The Safe Harbor for Annuity Carrier Selection
This safe harbor provides employers protection when they select an insurer to provide an annuity as a distribution option in their 401(k) plan. It replaces the former rules, which required an employer to look at the capital requirements, liquidity and solvency of an insurer for the duration of an annuity contract. This previous guidance was not sufficient to enable—much less encourage—employers to enhance their plans to offer a guaranteed lifetime income option. This law allows employers to simply rely on state insurance regulation and a written representation from the insurer confirming an insurer’s solvency at the time of carrier selection. According to MetLife’s research, eight in ten employers (82%) that had been awaiting clarification on the annuity safe harbor said they were likely to offer a guaranteed income option within the next five years once the clarification was issued.1
The Lifetime Income Disclosure Requirement
The Lifetime Income Disclosure provision requires annual plan statements to include the monthly income equivalent of an employee’s savings. Under the law, an individual’s current retirement plan balance must be illustrated as if they were receiving a monthly paycheck for life, based on assumptions prescribed by the U.S. Department of Labor in late 2021. Seeing the lifetime income equivalent will enable employees to be better informed about how much they need to save to meet their retirement goals and how to make their savings last. This type of illustration is already in place for defined benefit pension plan and Social Security statements.
Why is This Important to you and your employees?
Today, employees need to figure out how much to save for retirement, how much they can draw down from their savings in retirement, and how long they are likely to live. MetLife research found that many individuals who take lump sums from their defined contribution plans deplete their money too quickly relative to their life expectancy, with one in three individuals running through all of their money in an average of five years.2 Running out of retirement savings can potentially leave individuals to fund a significant portion of their retirement years with no income other than Social Security.
A guaranteed stream of income makes planning and budgeting easier, and helps avoid the risk of overspending or underspending in retirement. The good news is that nine in 10 pre-retirees (90%) and retirees (89%) and feel it’s valuable (i.e., very important or absolutely essential) to have a guaranteed monthly income (i.e., a retirement “paycheck”) to pay their bills.3
What Can you do Next?
As you seek to strengthen and enhance your company’s 401(k), or other type of DC plan, MetLife is uniquely qualified to partner with you and serve as your annuity provider. Please contact your MetLife representative below to learn about our commitment and experience in helping Americans achieve successful retirement outcomes.
Please Contact a Member of our Team for More Information:
Sales Director, Western Region
Sales Director, Eastern Region