401(k) plan focus is shifting from the accumulation phase to the distribution phase. The why is obvious. The first wave of Baby Boomers are reaching age 60 who have significant concerns about running out of money. The how is being provided by 401(k) providers – insurance companies and mutual funds – who are beginning to address the need by adding lifetime annuities as 401(k) distribution options. That it’s now an industry is evidenced by the activities of the Retirement Income Industry Association, a trade group formed to deal with retirement income challenges.
The regulators are not unaware of the potential for abuse. The NASD and a group of state insurance commissioners are calling for uniform regulation of annuities by having the states add a suitability requirement for all annuity products. Not unlike, the suitability requirement that the NASD imposes on broker/dealers.
To make it work, retirement plan sponsors will have to decide whether to allow advisors into the workplace. The Pension Protection Act provides fiduciary relief to plan sponsors in this regard, but it remains to be seen if that will actually happen.