Proposed Legislation for Retirement Savings
In an effort to enhance the availability of guaranteed retirement income for 401(k) investors, Congress is considering a bipartisan bill that would enable certain workers to purchase off-plan pensions using their retirement savings.
The Retirement Simplification and Clarification Act (HR 6324) would permit employees aged 50 and older to roll over part or all of their 401(k) funds into a qualified pension while still employed. Some plan sponsors might allow this transition once employees reach age 59 and a half, at which point they avoid a 10% early withdrawal penalty. However, this option typically isn’t available for younger employees.
David Chavern, president and CEO of the American Council of Life Insurance Companies, pointed out, “Currently, most people cannot move money from their 401(k) while they’re enrolled. They can convert it into an annuity, but this significantly restricts their choices to start generating the income they require.”
That said, financial advisors caution that this may not be the best option for everyone. Keeping money in a 401(k) allows it to continue growing, which can be beneficial.
Updates on Distribution Notices
In addition, the bill would require the IRS to revise the official documents provided when someone leaves an employer and requests distributions from a 401(k). This 402(f) notice details the distribution options and tax implications for former employees. The legislation mandates that these notices be made clearer and easier to understand, according to Representatives Darin LaHood and Jimmy Panetta.
The bill was introduced in November and is currently with the House Ways and Means Committee. While it has several co-sponsors, it’s unclear when the bill will advance or if it will proceed at all.
Pension Options for Concerned Savers
Many savers are anxious about their retirement income, with a significant 66% concerned about running out of money, per BlackRock’s 2025 Retirement Study. A whopping 93% expressed a desire for guaranteed income during retirement. BlackRock, which offers a distinctive pension product for 401(k) plans, surveyed over 450 plan sponsors, 1,300 participants, and 300 retirees earlier this year.
More individuals approaching retirement own 401(k)s, and they face the challenge of stretching those funds throughout their retirement life. This is a shift from previous generations who typically retired with a company pension ensuring a steady income.
Pensions help to alleviate these worries. Annuities, despite having investment elements, function more like contracts where individuals pay a lump sum and the insurance company guarantees regular payments over a defined period.
Some 401(k) plans are already integrating various forms of annuities to secure a guaranteed income for retirement. The SECURE Act of 2019 introduced changes aimed at alleviating employers’ concerns regarding legal liabilities when pension providers fail to meet their obligations.
While some plans may include standalone annuity options, others incorporate annuity-enhanced target-date funds. These are designed to allocate a portion of the funds towards future annuity purchases and shift from aggressive to lower-risk investments as retirement approaches.
Consider Keeping 401(k) Funds Intact
Despite these developments, the number of 401(k) plans offering pensions remains limited. As of early December, only about $29 billion had been invested in such funds—a fraction of the more than $4 trillion earmarked for target-date strategies.
Most savers who invest in pensions tend to do so after retiring instead of while working. Patrick Huey, a certified financial planner, noted, “For those worried about exhausting their funds without a pension, turning part of their 401(k) into a regular income through an annuity might be worthwhile.” Still, he cautioned that withdrawing money in your 50s, when you still have years to work, might not be the wisest choice. He emphasized, “I think most people should keep their funds intact.” While contributing to 401(k)s is essential for savings, there are scenarios where guaranteed future income becomes necessary, particularly for those with low-risk tolerance.
