while the pandemic and its economic repercussions have rightly dominated the news for nearly two years they have obscured some dramatic and longerlasting changes that have been rolled out for 401k investors the setting every community up for retirement enhancement act better known as the secure act became law on dec 20 2019 just before the pandemic took hold that plus further regulatory tweaks by the biden administration in 2021 have led to three major additions to retirement plans and one loss for some investors “i’ve never seen more change in the 401k space in my career as i have in the past 18 months” says matt wolniewicz a 30year veteran of the retirementplan industry wolniewicz is now the president of a new financialservices consortium called income america these recent changes have dramatically altered the landscape for investors planning for retirement this time good news comes in threes investors interested in sustainable funds will soon find more options in their plans those looking for guaranteed income in retirement will have an annuity option and people working at smaller companies that don’t offer retirement plans may soon find themselves with a 401k investors who took advantage of an unusual provision that allowed them to put more money into a roth ira may find that loophole closed soon here’s what you need to know annuities have long had a bad reputation for being overly complex pricey and sold by hucksters rather than integrated into a comprehensive financial plan but the guaranteed income for life that they provide is for many people crucial to a long and happy retirement yet most retirement plans haven’t offered an annuity option while they’re not explicitly disallowed the bar was high to justify including them in a plan the secure act reduced the liability for plans to offer annuities providing what is known as “safe harbor” which protects plan sponsors legally if an annuity issuer goes bust sponsors still must do an appropriate amount of due diligence as fiduciaries when selecting these products for their plans the rationale 401k plan participants should have the benefit of guaranteed lifetime income similar to what employees enjoy in traditional pension or definedbenefit plans annuity options are being paired with targetdate funds which were probably the last big change to 401k plans when they were introduced in the 1990s and allowed to become the default option for investors who don’t choose other investments in employer plans in 2006 these assetallocation funds shift their weightings toward moreconservative investments as the target date for retirement say 2030 or 2040 approaches but these funds aren’t typically designed to get someone all the way through retirement for that you need steady income—and sometimes guaranteed income in the form of an annuity wolniewicz’s firm income america is a consortium that launched in march 2021 with the goal of selling annuities linked to targetdate funds in retirement plans it is backed by several investment and insurance heavyweights such as american century investments lincoln financial group ticker lnc and nationwide income america’s new addition is its 5forlife group annuity contract once a plan participant in a targetdate fund turns 65 the amount in the fund can be converted into the annuity which pays 5 of the total amount at age 65 for the rest of the participant’s life the account stays invested in the targetdate fund after 65 and the recipient keeps any gains above the age 65 amount while losses don’t affect the 5ayear payout participants aren’t locked into the annuity either and can withdraw their assets at any time income america already has seven retirement plans signed up for 5forlife and the annuity became available in the plans this january other firms are offering similar products yet the formula for how guaranteed income for life is paid varies significantly from provider to provider in november state street global advisors launched an annuity product called incomewise as part of its targetdatefund lineup state street selected insurance provider metlife as the annuity provider inside incomewise for now the incomewise feature is offered only in the university of california’s retirement plan which has 35 billion in assets and 300000 participants incomewise is a deferredincome annuity—also called a qualified longevity annuity contract or qlac—that begins paying income when participants turn 80 in return for waiting until 80 investors can put less money down for a higher income stream than socalled immediate annuities which start paying income at retirement “relative to an immediate annuity you get roughly three times the buying power for the deferred annuity” says david ireland state street’s head of global defined contribution plan participants can invest up to 25 of their assets or 135000 whichever is less regulators currently limit the amount you can invest in qlacs as they are exempt from retirement plans’ taxable minimumdistribution rules in retirement according to ireland someone retiring today could invest 100000 and collect 1000 to 1400 a month once they hit age 80 depending on the annuity’s features if an investor dies before age 80 the entire investment is returned to their heirs otherwise the initial investment is locked up contrarily blackrock lifepath paycheck can act like an immediate annuity that makes payouts as soon as you retire the annuity contract portions of the paycheck targetdate products are issued by insurers equitable and brighthouse financial bhf you can increase the payout if you choose to delay receiving any income—a feature designed to resemble social security which pays more if you wait the annuity offers a “joint life option” that if selected covers both you and your spouse for lifetime income it also offers the option of a guaranteed 10year payout and if you die beforehand pays the remaining income of the period to your heirs “one of the behavioral reasons why people don’t want to select an annuity is they feel that ‘if i give you this money and i pass away in a year’s time then i’ve lost the money’ ” says nick nefouse blackrock’s head of retirement solutions “the way we’ve structured this is your dependents will continue to receive the money to take that anxiety off the table” so far five plan sponsors with about 100000 participants including the tennessee valley authority and advance auto parts aap  have signed up for lifepath nefouse says while the announcements from annuity providers have been primarily for big retirement plans small ones will soon start seeing annuities too in fact more small retirement plans in general are going to exist that’s because the secure act created a new kind of retirement plan called the pooled employer plan or pep peps are centrally administered 401ks that can be joined by multiple unrelated employers allowing businesses to outsource plan management employees at big firms are far more likely to have a 401k plan according to research firm cerulli associates almost 90 of privatesector companies with at least 500 employees offer a workplace retirement plan whereas only about half of employers with fewer than 50 employees offer them peps are meant to close the “coverage gap” for small businesses when surveying executives of small companies that didn’t offer 401ks cerulli found that 39 said they didn’t because plans were too expensive and 34 because they were too busy running their company to manage one outsourcing is simpler and cheaper as the combined scale of a pep reduces costs in fact about a quarter of surveyed companies with under 1 billion in assets in existing 401ks were also interested in joining peps when they become available in october lincoln financial announced that it was launching a pooled employer plan called openpep in collaboration with plan fiduciary and administrator national professional planning group and financialresearch firm morningstar morn “when we’re looking at cost savings and the efficiencies that are coming about through joining these peps we’ve seen as much as a 40 cost reduction” says michael salerno ceo of nppg salerno says four plans signed up for openpep within a month of its launch and that nppg and lincoln are already working on about 100 plan conversionaddition proposals for 2022 to differentiate openpep from competitors plans will also offer lincoln pathbuilder income an annuity targetdate investment similar to income america’s 5forlife which lincoln financial also helped design while annuities and peps are the 2019 secure act’s progeny the department of labor made a significant change to plans in october 2021 with a ruling that encourages plan sponsors to employ environmental social and governance or esg criteria to select plan investment options now that it has passed what’s called the public “comment period” the dol’s rule is expected to be finalized by the middle of this year though some plans already have esg options the rule also applies to a plan’s default investment option or qualified default investment alternative qdia which is what employees are enrolled in automatically when they join the plan that’s typically a targetdate fund and most employees end up keeping their assets in it according to analysis by fund giant vanguard of its retirementplan assets in 2020 60 of participants held a singlefund option in their account and 91 of them were invested in a single targetdate fund previously plan sponsors were hesitant to include esg funds because of a donald trump–era rule exposing them to legal liability for pursuing “nonpecuniary objectives” although not finalized the new rule’s language states very clearly that “climate risk is investment risk” and that esg factors affecting returns should be considered when selecting fund options the demand for esg is clearly there according to blackrock’s 2021 survey of plan participants 73 say it’s important to have esg options 49 of millennials say it’s very important “participants want this” says anne ackerley head of blackrock’s retirement group “it’s very much on plan sponsors’ minds” but because including a default option that participants don’t select themselves adds to legal liability plan sponsors may remain hesitant “i don’t think the esg shift happens quickly but it will happen over time” says ackerley given the convergence of these changes it is even likely that default targetdate funds will eventually have both esg and annuity features while plan investors are gaining new options they may be losing one too in its current form the biden administration’s build back better bill would eliminate what are known as backdoor roth ira conversions from 401ks and traditional iras but there is no guarantee that the current version of the bill will pass as there is a lot of infighting within the democratic party over it normally taxpayers with incomes exceeding 140000 can’t contribute to roth iras which allow taxfree withdrawals in retirement but they can contribute on an aftertax basis to traditional iras and then convert those into a roth ira—hence the back door they can also roll over a highly valued 401k into an ira and then convert that into a roth starting in 2032 build back better would eliminate such conversions for single taxpayers earning in excess of 400000 a year or married couples earning more than 450000 it also would bar any aftertax contributions in iras or 401ks from being converted to roths starting in 2022 the current limit on pretax contributions ie taxdeductible contributions is an annual 6000 per individual investor for those under age 50 or 7000 if you’re over 50 this would kill backdoor roth conversions for the wealthiest investors yet another bill introduced in may of 2021 and dubbed the secure act 20 seems likely to pass as it has bipartisan support and it gives investors more opportunities to expand their wealth it would gradually increase the age when 401k and ira investors must take a taxable required minimum distribution from 72 to 75 allowing their assets to grow taxfree for longer the rule also increases the maximum amount of pretax contributions for those ages 62 to 64—what is known as the “catchup limit”—from 6500 a year to 10000 it seems that with so many changes afoot the government giveth and the government taketh away—but then if you wait a little bit it giveth again