MONEY

New Treasury Dept. appointee eyes substantive retirement plan changes

The Obama administration brought one of the leading proponents of retirement plan reform into the official fold in late April, signaling the administration is going to push hard to reform the retirement saving plan system.

Mark Iwry has segued from wonk-land (Brookings, and principal at the Retirement Security Project) to become the new senior adviser to Treasury Secretary Timothy Geithner and deputy assistant secretary for retirement and health care policy. Along with David John of the Heritage Foundation, Iwry co-authored the blueprint for the Automatic IRA that is now included in the Obama administration’s 2010 budget proposal. This new savings vehicle would require employers who do not currently offer a retirement plan to set up an automatic direct deposit for employees to contribute to their own IRA. (For more on Auto IRAs click here.)

That apparently is just the start. Recently Iwry along with other leading retirement policy experts have begun floating the idea of a way to systematically provide steady guaranteed income from retirees 401(k) accounts, much like an old-fashioned (and rare) defined benefit pension.

In a recent interview with Investment News before joining the Obama administration Mr. Iwry said the annuity initiative is “in the early stages, but there has been a fair amount of interest in our ideas and the core concepts so far.”

In a March presentation to the Conference on Financial Literacy, Iwry and John laid out some of the current (early) thinking on creating annuities for defined-contribution retirees:

• Half of a retiree’s assets in a 401(k)-type account would be automatically paid as monthly income for a two-year trial period (the default trial arrangement), unless the retiree affirmatively elected a different form of payout permitted under the plan.
• After the trial period of 24 consecutive monthly payments, the retiree could again opt for alternative forms of payment. Those who made no affirmative choice within a specified period would continue to receive monthly payments as the program converts automatically from trial-period income to permanent income.

Iwry and John have also floated ways to encourage pre-retirees still contributing to a plan to create a pot of annuitized money. One possibility is to have the employer match made into a deferred annuity. Another idea is to use deferred annuities within the “bond” portion of lifecycle funds as employees near retirement.

It’s still too early to know if this plan will have traction, but it is interesting that the Obama administration is clearly focused on how to improve the potential outcomes for Baby Boomers rapidly transitioning from the age of accumulation to the perilous de-cumulation period. Left on their own (and at the mercy of online retirement income calculators) the concern is that too many boomers will set too aggressive a withdrawal schedule early in their retirement that will cause them to outlive their assets.

We’ll keep you posted on the progress of the annuitization movement inside the Beltway.

– Carla Fried

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