Compliance September 21, 2018

Protecting the Rights of Alternate QDRO Payees, When it Comes to Divorce

Senator Patty Murray (D-WA) sent a letter to Government Accountability Office (GAO) requesting a study on the QDRO process.

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Senator Patty Murray (D-WA), Ranking Member of the Senate Health, Education, Labor and Pensions (HELP) Committee, sent a letter to Government Accountability Office (GAO) Comptroller General Gene Dodaro requesting a study on the process for obtaining a Qualified Domestic Relations Order (QDRO), which allows for pensions or retirement accounts to be divided following a divorce or legal separation.

The Senator’s letter includes data from a GAO study which found that women’s household income and assets, on average, fell by 41% with divorce, with the income decline being almost twice the size of the decline that men experienced. One protection available to women is the QDRO, which creates or recognizes the existence of a right to receive a share of retirement benefits. She says in her letter, “The DOL issued interim regulations governing QDROs in 2007, with final regulations issued in 2010. Since that time, there have been concerns that the current QDRA process has not been wholly effective in protecting the rights of alternate payees, especially women.”

Murray asks that this study looks at the process for dividing retirement assets that looks at the timeline, costs, barriers, opportunities for improvement, and impacts on various segments of the population.  In efforts to address retirement gap, Senator Murray has introduced legislation  focused on challenges that disproportionately affect women and legislation to enhance Social Security benefits for divorcees and widows.

This action is the latest in Senator Murray’s ongoing efforts to address the retirement gap women face as they prepare for their financial futures. Earlier this month, Senator Murray reintroduced the Women’s Pension Protection Act (WWPA), a package of solutions to help strengthen women’s retirement security by addressing some of the challenges that disproportionately affect women. She also introduced the Stronger Safety Net Act (SSN) earlier this year, legislation that included provisions to enhance Social Security benefits for divorcees and windows.

Investing September 20, 2018

How Sponsors Can Offer Guaranteed Lifetime Income

One option is through a profit sharing plan that invests the money in an annuity once a participant retires.

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DIETRICH and OneAmerica Retirement Services hosted a webinar Thursday, “Securing Guaranteed Income in Retirement: Strategies for lifetime income in Defined Contribution plans,” that explored the need for guaranteed lifetime income, the obstacles sponsors face when trying to offer in-plan annuities, and one way to offer guaranteed lifetime income outside of a 401(k) plan.

“With the decline of the defined benefit (DB) plan, we at DIETRICH feel very strongly that plan sponsors, administrators, retirement plan advisers and insurance companies can make a difference in how participants benefit from a defined contribution (DC) plan,” said Geoff Dietrich, vice president at DIETRICH. “Plan sponsors continue to shift away from DB pension plans to the DC model, and DC plans are now the main retirement savings vehicle for Americans, even though they originally intended to be a supplemental savings plan.”

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Dietrich went on to say that one of the main concerns of retirees is outliving their savings. “As a result, employers, employees and the government are starting to recognize the deficiencies of DC plans,” Dietrich said. “The vast majority of employers, 84%, are not confident their workers will have adequate savings for retirement.”

As the model has shifted from DB plans to DC plans, “the consequence has been the elimination of the guaranteed lifetime income benefit provided by these former DB plans,” he said. “Only 5% of 401(k) plans offered a guaranteed retirement income product in 2015, according to the Plan Sponsor Council of America. The single biggest advantage of annuities over other investments is that you cannot outlive them.”

Dietrich then pointed to several legislative developments meant to encourage sponsors to offer in-plan annuities. In 2008, the Department of Labor issued safe harbor conditions on the selection of annuity providers in a DC plan. A 2015 Field Assistance Bulletin (FAB) further clarified the safe harbor.

The first document said that sponsors should engage in an objective, thorough and analytical search and consider competing annuity providers. They should consider the financial security of the insurer and its ability to make all future payments, and they should consider the reasonableness of fees. Importantly, the FAB said that sponsors were only responsible for relying on information about the insurer available at the time of the selection of the annuity.

The proposed 2018 Retirement Enhancement and Savings Act would provide a fiduciary safe harbor for the selection of a lifetime income provider and protect sponsors from liabilities for any losses that may result due to an insurer’s inability to satisfy its financial obligations.

Despite these assurances, sponsors are still hesitant to offer in-plan annuities because of their complexities and portability issues, Dietrich said.

This is why OneAmerica Retirement Services has developed OnePension, said Pete Welsh, vice president of distribution at the firm. It is a profit-sharing plan that invests the money in an annuity at the time of a participant’s retirement, he said.

“It allows the plan sponsor to determine how much they would like to put into the profit sharing plan and to invest it as they and their adviser see fit,” Welsh said. “Then, at age 65, the account balance is annuitized. It is designed for those paternalistic plan sponsors to provide lifetime income without the cost of a defined benefit plan—the mandatory contributions, Pension Benefit Guaranty Corporation premiums and actuarial costs. They can dial up or down their contributions based on their profitability.”

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