New 401(k) Options and Disclosures Offer More Control Over Retirement Savings

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Millions still risk running out of money in old age.

If you fear you might be one of them, Daszkal Bolton would like you to know the Treasury’s newly issued regulations will make it easier and less expensive for retirees to transfer money accumulated in their 401(k)s into an annuity guaranteeing monthly payments until death. Other new disclosure rules will inform workers about the fees various financial firms charge for running 401(k) plans.

Many companies have frozen or ended their traditional, defined-benefit pension plans and replaced them with 401(k) plans. Traditional pension plans are a type of annuity, a stream of guaranteed payments from retirement to death. Most employers still offering annuities give retirees a choice of either the whole balance in a check, or the whole balance to buy an annuity. Tax rules make it complicated to calculate the values if the amount is split, so those rules are being relaxed. The new proposals would allow workers to convert a portion of their 401(k) savings into an annuity and allow for the creation of a “longevity annuity” for retirement savings. Also known as “deferred fixed annuity,” retirees can take part of a lump sum distribution at age 65 and defer it for 20 years. Being able to convert a portion of a 401(k) into an annuity could help prevent many retirees from running out of retirement savings and keep a secure income stream for life.

The Treasury is also changing the way required minimum distributions are calculated.  If you are over 70, you are required to withdraw a certain amount from your 401(k) plan every year. The new method would exclude any money that went to an insurance company to buy longevity insurance or an annuity. To prevent high earners from improperly sheltering money, the Treasury capped the maximum amount of retirement plan money that could be spent on longevity insurance at 25 percent of the account balance, up to $100,000.

Many 401(k) plans have poor investment choices and very high fees, but new rules from the U.S. Department of Labor will now require disclosure of 401(k) fees which should result in more transparency and hopefully lower fees overall. Service providers have until July 1st to tell employers the costs of their 401(k) plans. Participants have to wait until they receive their 401(k) statement for the third quarter to see a full comparison of investment and plan fees.

Daszkal Bolton can assist your business in developing an implementation plan to ensure your 401(k) is compliant with the new disclosure rules. For additional information on the new rules and how they apply to your 401(k) plan, contact Sharon Bradley, CPA, Principal-in-Charge of the Benefit Plan Audit Group at 561-367-1040. If you are an individual interested in retirement planning, we can assist you as well!

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