Vol. 8 | No. 2
Date:04/30/2025
DC Committee Releases Decumulation Issue Brief
The Pension Committee’s Defined Contribution (DC) Subcommittee released an issue brief in March, Decumulation Strategies: Creating Lifetime Income from Defined Contribution Plans, which outlines the insured and non-insured options available through employer-sponsored DC retirement plans. It also compares these options across key features and strategies. The subcommittee also published an issue brief executive summary, offering highlights. A related webinar on the issue brief and topic is set for May 29.
Retirement Report asked Subcommittee Chairperson Maria Carnovale about some of the paper’s key issues, and related retirement topics.
What prompted this issue brief and how long was it in development?
The idea for this issue brief originated within the Pension Committee, even before the DC Subcommittee was established. Our goal was to create a resource for consulting retirement actuaries who advise DC plan sponsors, helping them understand the risk and reward trade-offs of various in-plan insured lifetime income options. Additionally, we aimed to provide insights for life actuaries who are familiar with retail annuities but are less acquainted with group retirement planning and the unique features of in-plan annuities.
You participated in the Hill visits. What were some key topics or takeaways discussed on the pension/retirement side?
Common themes discussed were lifetime income options in DC plans, addressing the PBGC [Pension Benefit Guaranty Corporation] single-employer fund surplus, understanding the extent of spousal protections in 401(k) plans, and of course, Social Security. (See more, next story.) During one meeting, we were specifically asked if we had resources on the inclusion of insured lifetime income in Qualified Default Investment Alternatives (“QDIAs”). Fortuitously, this is the topic of our next paper, which is already in the works!
Did you discuss key points from the issue brief at the recent Hill visits?
Yes, this paper was included in the Academy packet we provided to Hill staff during our meetings. Lifetime income was a topic of discussion at multiple Hill meetings. Staffers from both sides of the aisle seem interested in improving lifetime income access and outcomes.
The executive summary discusses Insured versus uninsured DC plan payment options—what, generally, are the highlights of each?
Non-insured drawdown strategies, such as required minimum distributions (RMDs) or the 4% rule, offer the most flexibility and upside investment potential during both the accumulation and payout phases. However, they do not protect against downside investment or longevity risk. It can be difficult to efficiently manage these risks on an individual basis. For instance, a participant might need to adopt a very conservative payout strategy.
Insured in-plan payment options, on the other hand, leverage risk pooling to manage investment and longevity risk. In exchange for a fee paid to the insurance company, participants receive more certainty and guaranteed payouts. This approach can be used for a portion of a participant’s DC balance, while they manage the rest using a non-insured drawdown strategy.
Participants can control the extent to which they trade liquidity and upside investment potential for certainty, depending on the chosen product. Our paper outlines key features and attributes that stakeholders can use as a reference when evaluating different options:
- Income guaranteed for life
- Level of liquidity (both pre- and post-income commencement)
- Post-retirement death benefit to heirs
- Extent of downside protection (both pre- and post-income commencement)
- Extent of upside potential (both pre- and post-income commencement)
- Fees
- Simplicity
As we consider the “three-legged stool” for retirement savings (employer pension/retirement plans, personal savings, and Social Security), is there anything else that policymakers should be thinking about when we consider DC plans and other retirement saving mechanisms?
The employer leg of the three-legged stool has evolved significantly since ERISA was passed more than 50 years ago, with much of the responsibility shifting to employees. In traditional DB pension plans, employers provided the pension benefit, decided how to invest the assets, and assumed the investment and longevity risk. With the shift to DC plans, retirement benefits may depend on employee savings, such as in cases where the employer only provides a match. Employees now must decide how to invest their money and ensure it lasts their lifetime. Similar trends are seen in employer-provided health insurance with the shift toward high-deductible health plans and HSAs.
In this framework, employees have more autonomy and play a more active role in their retirement planning and execution. However, they lose the risk pooling feature of traditional DB plans. Certain risks, like longevity risk, can be more efficiently managed when pooled in a large group. The next frontier in employer-provided retirement plans will likely involve finding ways to reintroduce risk pooling. Actuaries are uniquely suited to address this challenge and should play a central role in developing solutions.
What else is the DC Subcommittee thinking about this work product and future work products?
This issue brief serves as a foundational piece for all the publications yet to come. We are excited to delve deeper in our next work product, which explores embedding insured lifetime income products in Qualified Default Investment Alternatives (QDIAs). As I mentioned, this topic arose during Hill visits, and it’s one that the ERISA Advisory Council chose to study last year. I think we will be able to share a unique actuarial perspective on this hot topic.
Academy Conducts ‘Hill Visits’ With Federal Lawmakers in Washington
The Academy conducted its annual “Hill Visits” with volunteers from all five practice areas, meeting with congressional staff on Capitol Hill in Washington April 2–4 on important public policy issues ranging from Social Security and lifetime income to health insurance, cybersecurity and AI to flood and homeowners’ insurance.
More than 40 volunteers—including President Darrell Knapp, Immediate Past President Lisa Slotznick, Pension Committee chair Grace Lattyak, DC Subcommittee chair Maria Carnovale, Social Security Committee chair Sam Gutterman, and other Retirement Practice Council volunteers—participated in more than 30 meetings with congressional members’ and committee staff, including the House Ways and Means Committee, House Homeland Security Committee, Senate Environment and Public Works Committee, and Senate Aging Committee.
“From the Academy’s perspective, the Hill visits are really about starting a conversation” with lawmakers and policymakers, Knapp said.
The Retirement Practice Council (RPC) held meetings jointly with the Life Practice Council on issues including life insurance and financial security, pension policy, and Social Security, highlighting the value and expertise that actuaries bring to the table.
“We know that Social Security reform dialogues will heat up sooner or later, and we want to make sure that the various policy teams are aware of the analyses the Academy has done on the key reform-related issues, to help ensure they’d look to draw on those materials as they prepare to engage,” said Jerry Mingione, who participated in the Hill visits.
The Academy releases issue briefs every year on the annual Social Security Trustees Report. Last year the RPC released an issue paper on Immigration and Social Security, and the recently revamped Social Security Challenge webpage, which outlines the Academy’s resources. The Academy’s 2022 issue brief, Raising the Social Security Retirement Age, was also part of the discussions.
Retirement Symposium Postponed
The Academy has postponed the Future of Retirement Symposium that had been scheduled for June to later this year.
Webinar Highlights CDC Plans
A Feb. 26 retirement webinar featured members of the Retirement Policy and Design Evaluation Committee, including Chairperson Lee Gold, who examined and discussed collective defined contribution (CDC) plans, how policymakers may want to think about them as a future retirement tool, and the committee’s September 2024 issue brief on the topic. Watch a replay on Academy Learning.
Retirement Volunteer Presents at Columbia University Actuarial Science Series
Former Retirement Policy and Design Evaluation (RPADE) Committee Chairperson Claire Wolkoff was the featured speaker at the Columbia University Actuarial Science Program Proseminar Series on April 1.
In her talk, “Serving the Public Through the Academy: My Journey, Your Future Opportunity,” Wolkoff spoke on the value of service to the public through Academy volunteerism, using examples from her own volunteer experience, including last year’s RPADE policy paper, Improving Retirement Outcomes: Demographic Considerations.
Highlights From
Retirement Report
Prefer to watch your news? Check out this “Highlights From Retirement Report” video for a quick recap of what you need to know.
In the News
Plan Adviser spotlighted a chart from the recent decumulation issue brief summarizing insured and non-insured payout options offered through employer-sponsored retirement plans.
An op-ed on public employee pension plan funding in the Pauls Valley (Okla.) Democrat cited the Academy’s The 80% Pension Funding Myth issue brief.
An op-ed on Social Security in The Hill cited an Academy issue brief on insurance fraud.
Wealth Update reported on the Actuaries Longevity Illustrator, developed jointly by the Academy and the Society of Actuaries.
A National Council on Teacher Retirement post exploring the meaning of funded ratios at or above 100 percent extensively drew on the April 2024 Academy issue brief, ‘Surplus’ Considerations for Public Pension Plans.
A story in The Guardian on the need for consumers to factor increased longevity into their planning cited the Academy.
Legislative/Regulatory Activity
Federal
Lori Chavez-DeRemer was sworn in as Secretary of Labor on March 11. The Senate confirmed her nomination by President Trump by a 67–32 vote. The former Oregon congresswoman previously served as a member of the House Education and Workforce Committee, which oversees retirement-related issues.
President Trump nominated Janet Dhillon to serve as Director of the Pension Benefit Guaranty Corporation (PBGC) on March 10. She formerly served as chair of the Equal Employment Opportunity Commission during Trump’s first term.
The PBGC issued a final rule amending its regulation on allocation of assets in single-employment plans on April 2. It prescribes the spreads for purposes of the interest assumption under the asset allocation regulation for plans with valuation dates of April 30 to June 30, 2025.
House and Senate members introduced companion bills in March, called the Women’s Retirement Protection Act, to strengthen protections and provide enhanced tools to help women better prepare for retirement. HR 2023 was sponsored by Rep. Lauren Underwood of Illinois, and S 988 was sponsored by Sen. Tammy Baldwin of Wisconsin.
House and Senate lawmakers unveiled identical legislation that would increase Social Security payments by $2,400 a year and extend the solvency of the program for 75 years. The Senate version, S 770, was introduced by Sen. Bernie Sanders of Vermont, while the House version, HR 1700, was introduced by Rep. Val Hoyer of Oregon.
On April 7, Rep. Lloyd Smucker of Pennsylvania introduced the Retirement Savings for Americans Act, HR 2696, which offers uncovered private-sector workers access to a federally run retirement plan and includes a matching contribution for low- and middle-income worker plan participants.
Rep. Steve Cohen of Tennessee introduced HR 2621 in early April, which would eliminate federal income taxes on Social Security benefits, as well as on tipped wages and overtime pay.
Rep. Jeff Van Drew of New Jersey introduced HR 904, which excludes Social Security and Tier I railroad retirement benefits from counting toward gross income for federal income taxes. The bill also provides monies to cover reductions in funding for the Social Security, Medicare, and Railroad Retirement trust funds.
State
The Kentucky General Assembly in March overrode vetoes from Gov. Andy Beshear on two pension-related bills: HB 694, which requires that excess monies in the state teacher retiree health fund be used to pay down unfunded liabilities within the pension fund once it has an actuarial funding level of at least 100%; and SB 193, which makes changes to how state boards govern state-administered retirement systems.
Beshear signed HB 30, exempting any pay increases authorized or funded by a legislative or administrative body, or mandated in a collective bargaining agreement approved by the legislative body for workers who are participants in a state pension plan, from pension spiking provisions.
Ohio Gov. Mike DeWine signed SB 6, prohibiting state retirement system boards and other state-related entities overseeing retirement plans from making investment decisions on anything more than maximizing returns, such as influencing a social or environmental policy or the governance of a corporation.
Arkansas Gov. Sarah Huckabee Sanders signed HB 1161, giving retirees within the Arkansas Teacher Retirement System one year to cancel an annuity plan chosen at retirement and replace it with another option, as long as they repay the difference, if any.
The Montana House approved HB 827, which would reduce state taxes paid on Social Security payouts by raising the floor for single/head of household filers paying state tax on Social Security earnings from $25,000 to $40,000, while the floor for two-income households would rise from $32,000 to $65,000.
The Washington Senate Ways & Means Committee approved HB 1270, authorizing local governments operating deferred compensation programs to automatically enroll new employees in accordance with plan rules, unless employees affirmatively choose not to participate.
Washington’s House Appropriations Committee approved SB 5357, revising the normal cost contribution rates for the 2025–2027 fiscal biennium to reflect updated projections regarding the funded status of each pension plan and the expectation that contribution rates will decline over the next six years.
The Georgia Senate passed SB 31, exempting military retirement benefits from state taxes.