Over the past several years, there has been a continuing shift away from employer-provided defined benefit pension plans toward defined contribution plans, such as 401(k) plans, that do not typically provide for payments in the form of income for life. Government agencies have been examining how this shift has imposed increased responsibility on Americans to manage their own retirement security.

The White House Council of Economic Advisers has concluded that, while lifetime income products (i.e., annuities) can mitigate the risk that retirees will outlive their retirement savings, there are several regulatory barriers to offering these products. In response to this finding, on February 2, 2012, the Department of the Treasury ("Treasury") and the Internal Revenue Service ("IRS") issued an initial package of proposed regulations and revenue rulings intended to remove impediments to providing annuities under defined contributions plans, such as 401(k) plans.

In assessing whether to add an annuity option to their 401(k) plans, employers need to understand how the new guidance changes the landscape.