Lifetime Income For Employees Act
Legislators are responding to Americans’ concerns about running out of money in retirement with a reintroduced bill designed to help Americans retire with a guaranteed stream of income funded by their own savings. The Lifetime Income For Employees (LIFE) Act is a bipartisan bill that seeks to build on the SECURE Act, another retirement-focused bill which was signed into law in 2019.
What Would the LIFE Act Change?
Currently, employers can choose whether to offer annuities as an investment option for employees enrolled in a sponsored 401(k) plan. Employer election of this option has been limited, partly because of workers’ lack of understanding surrounding annuities and how they can provide guaranteed income in retirement. Employers also currently lack safe harbor from liability in the unlikely event that an annuity provider should fail or otherwise cannot meet investor obligations.
But lawmakers are considering a proposed bill that would allow annuities to be a default 401(k) investment option for enrollees in an employer-sponsored 401(k) plan. If passed, the LIFE Act would allow employers to place up to 50% of contributions into an annuity for any employee who does not specifically choose how they would like their 401(k) contributions to be invested.
The bill would also amend the U.S. Department of Labor’s regulations defining qualified default investment alternatives, or QDIAs. Current laws protect plan sponsors from liability should a QDIA suffer losses, and the new bill aims to encourage employers to offer annuities as a default by including them under this safe harbor provision.
Under the current version of the bill, 401(k) participants would have six months to opt out of the annuity if any of their contributions have defaulted to an annuity account. After that, getting contributions out of the annuity may be more difficult and could incur surrender charges depending on the terms of the annuity provider’s contract. The bill does not place any limitations on the annuity provider that plan sponsors can contract with.
Why Is the LIFE Act Being Proposed?
Sponsors and proponents of the LIFE Act say the legislation is addressing increasing demand for guaranteed lifetime income options at workplaces across the country.
Representative Donald Norcross (D-NJ), who helped reintroduce the bill, told the American Society of Pension Professionals and Actuaries, “By creating ‘individual pensions,’ this legislation will provide hard-working Americans with a guaranteed income so they can retire with dignity.”
The bill’s cosponsor, Representative Tim Walberg (R-MI), added, “For too many families, the thought of having enough set aside for their retirement years remains out of reach. Encouraging and increasing access to savings options will help provide workers with greater peace of mind that their income will last throughout retirement.”
The reintroduction of the LIFE Act comes at a time when more and more American workers are seeking out and purchasing annuity products. The Teachers Insurance and Annuity Association’s 2021 Lifetime Income Survey found that over 70% of workers would choose to work for or stay with an employer that offered access to guaranteed lifetime income in retirement over one that did not.
Factors like uncertainty in the equity market and rising inflation sparked a 16% increase in annuity sales in 2021, and last year saw the highest annual annuity sales since 2008. Since fixed-rate annuities offer an average of three times the return of CDs, many Americans view annuities as an attractive investment option with minimal risk and higher potential returns.