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It is one of the biggest conundrums of an aging society: Americans have salted away $11 trillion in retirement plans, yet millions still risk running out of money in old age. On Thursday the government said it had some new tools to deal with the problem. The Treasury issued several new regulations intended to make it easier, and maybe cheaper, for middle-class people in retirement to transfer the money they accumulated in their 401(k)s into an annuity that would guarantee monthly payments until they die. “Having the ability to choose from expanded options will help retirees and their families achieve both greater value and security,” said Treasury Secretary Timothy F. Geithner. The Labor Department also said it had completed rules to let workers learn about the fees various financial firms charge for helping to run 401(k) plans. Labor officials said they thought employers could negotiate better terms if the details were more easily available. The risk of outliving one’s assets has moved front and center in recent years, as companies have frozen or ended their traditional, defined-benefit pension plans and replaced them with 401(k) plans. Traditional pension plans offer what is, in fact, an annuity, a stream of guaranteed payments from retirement to death. But fewer and fewer employers want to be running an annuity business on the side. Insurance companies, on the other hand, are eager to wade into what they consider a big and attractive market of graying Americans with I.R.A. and 401(k) balances and little idea of what to do with them. But they have held back, in part, because of tax rules, which Treasury is easing. One of the changes proposed Thursday would make it easier for employers to work with annuity providers, so that workers can learn about their annuity options at work, rather than having to go to a financial planner or broker. “I’m trying not to jump up and down in my office, actually,” said Jody Strakosch, national director of annuities for MetLife, who was asked about the new rules while she was reading the 47-page tome from Treasury. She said MetLife had had suitable annuity contracts available since 2004, but had been selling them mostly to the retail market and not to employers who offer retirement savings plans. J. Mark Iwry, an official at the Treasury department, said the department hoped in particular to foster a workplace market for “longevity insurance,” something much discussed in policy circles but that employers rarely make available to workers when they retire. Longevity insurance consists of an annuity whose stream of payments does not start until the retiree is well into retirement — say, 80 or 85 years old. That is the point where policy makers think many will need the money, because they will have exhausted their savings or developed costly health problems. The insurance would kick in and supplement Social Security. Like Social Security, the longevity insurance payments would keep coming every month until the retiree’s death. But because the policy would pay nothing in the first 15 to 20 years of a person’s retirement, it would cost much less than a conventional annuity. A white paper by the Council of Economic Advisors estimated, for example, that a 65-year-old would have to pay $277,500 for a $20,000-a-year annuity that started immediately, but only $35,200 for one that started at age 85. With a price so much lower than a conventional annuity, employees would be able to buy longevity insurance to cover their riskiest years with just a portion of their 401(k) account balance. Most employers that offer annuities give retiring workers an either-or choice: the whole balance as a big check, or the whole thing to buy an annuity. Tax rules make it complicated to calculate the values if the amount is split, so those rules are being relaxed. When the federal employees’ Thrift Savings Plan let people spend just part of their balance on longevity insurance, there was an increase in participation. “They found a dramatic pickup in the number of people who were able to take a partial annuity,” said Ms. Strakosch. (MetLife provides the Thrift Savings Plan’s annuities.) The Treasury also capped the maximum amount of retirement plan money that could be spent on longevity insurance at 25 percent of the account balance, up to $100,000. Mr. Iwry said that would keep high earners from improperly sheltering money, and minimize any effect of the changes on federal tax revenue. Treasury is also changing the way of calculating required minimum distributions — the amounts that people over 70 are required to withdraw from their 401(k) plans every year. The new method would exclude any money that went to an insurance company to buy longevity insurance or an annuity. Some of the rules take effect immediately; other changes are in the public comment period.
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