Last Friday, the U.S. Treasury Department took another exceptionally important step to promote retirement income security “designed to expand the use of income annuities in 401 (k) plans.”

The treasury issued guidelines in Notice 2014-66 to pave the way for employers who sponsor 401(k) and other defined contribution plans to voluntarily allow the contributions of automatically enrolled participants to be placed in deferred annuities. October’s guidelines are an additional follow up on the heels of July’s final rules issued by the combined efforts of the Treasury, IRS and the Department of Labor on the use of longevity annuities - QLAC, which is a type of deferred income annuity that begins at an advanced age in 401(k) plans and IRAs to enhance retirement income security.

The QLAC rule makes it easier to access deferred annuity options in qualified retirement plans including individual retirement accounts by allowing the value of longevity annuity contract to be excluded from calculations for required minimum distributions which in the past have obstructed the use of the contracts in retirement plans.

Stated in the Treasury press release, “As boomers approach retirement and life expectancies increase, income annuities can be an important planning tool for a secure retirement,” said J. Mark Iwry, Senior Advisor to the Secretary of the Treasury and Deputy Assistant Secretary for Retirement and Health Policy. “Treasury is working to expand the availability of retirement income options for working families. By encouraging the use of income annuities, today’s guidance can help retirees protect themselves from outliving their savings.”

Current 401 (k) plans offer Target Date Funds as a default investment for participants who do not affirmatively elect a different investment. Target Date Funds or TDF’s are named for the fact that their allocation of investments shifts gradually from equities to fixed income as participants approach an intended target retirement year.

However, the problem of predicting the length of life for an individual and how they should be spending their money once they reach retirement Is still a very real and accurate concern. Spend too little and they might not be able to maintain their lifestyle, spend too much and they can run out of money.

Life annuities can solve this difficult financial planning problem. A deferred income annuity provides income that continues throughout an individual’s lifetime that begins at a future date. DIA’s serve as a sort of pension and will now be part of a company’s sponsored retirement plan.

This is a big promotion for annuities for millions of future retirees. By making this clear guidance available to plan sponsors, the Treasury Department is recognizing the crucial part annuities will have in achieving financial security for American’s when they reach retirement. Once employees become aware of the annuities feature offered, it will trigger discussions with clients.

This is an excellent opportunity to be the educator for your clients - and with the increased awareness about annuities in general - this will generate an easy way for you to find best retirement plan for your clients.

Click here to read the full version of Notice 2014-66!