But let's look further ahead. What will replace the crumbling structure of DB plans, to give today's 25-year-old worker a sense of retirement security? I believe the answer may already be clear – namely, a combination of participant-directed defined contribution plans and deferred income annuities. Perhaps this solution will become not only an option but a mandate for many American workers of the future, similar to what now exists in some European countries. Momentum toward it is accelerating, and now is the time to upgrade your knowledge and position your practice to benefit. In this column, I've rounded up developments you may want to follow.

Kline-Miller

Under the new legislation, which passed with little debate, trustees of financially troubled multiemployer DB plans will be allowed to cut vested benefits of participants under the age of 75 years old by up to 60 percent. Within any plan, the first cuts must be made to benefits of participants who worked for defunct or bankrupt companies. AARP has estimated that in New York State alone, Kline-Miller could impact benefits of over 100,000 participants in 59 multiemployer plans. Their average annual pension benefit could be reduced from $6,965 per year to $2,322.

The maximum annual benefit guaranteed by the PBGC's multiemployer program is $12,780 per year, and Kline-Miller does not allow any benefit to be cut below 110 percent of the comparable PBGC benefit, based on salary and service. The main impact of Kline-Miller is to overturn the protection of DB pensions that have existed since ERISA was enacted in 1974. Now, multiemployer plan trustees can slash pension benefits without declaring the plan insolvent and putting it under PBGC supervision.

Although multiemployer private plans face unique challenges, the situation is not much better in some public pension plans, which could face similar benefit cuts in the future. Alicia Munnell, director of Boston College's Center for Retirement Research, told Bloomberg that Kline-Miller "is letting the genie out of the bottle. Once it becomes legal to cut accrued benefits, then it's a different world. It's really precedent-making change."

DIAs in TDFs

In October, the IRS released Notice 2014-66, allowing 401(k)s to include unallocated deferred income annuities in target date funds, without violating nondiscrimination rules. The idea is that DIAs now can be phased in as TDF funding options for older employees, to assure a base of guaranteed lifetime income. Such TDFS may be used as a plan's qualified default investment alternative, the IRS also held.

QLACs

In July, The U.S. Treasury released final regulations for Qualified Longevity Annuity Contracts, also called "longevity annuities" held in retirement plans. A QLAC, therefore, is a DIA arrangement meeting these guidelines.

Participants may allocate the lesser of $125,000 or 25 percent of account balances to purchase QLACs and avoid minimum distribution requirements on that money, provided annuity income payout begins no later than age 85. Now, all that is missing to take QLACs mainstream are rules clarifying how they can be "ported" between DC plans.

Insurance Industry Support

The insurance industry has unified its efforts to promote annuity-based retirement plan strategies under the Insured Retirement Institute, which now represents more than 30 insurance companies.  The IRI compiles a quarterly Annuity Sales Report, advocates favorable regulations and tax policies for annuities, and provides education on the need for guaranteed lifetime income solutions

Advisor who wishes to keep abreast of this field can plug into IRI's activities here: http://irionline.org/home

DIA Sales Growth

DIA sales totaled $2.2 billion in 2013 and were expected to increase modestly from that level in 2014. In its annual State of the Industry Report, IRI said that the number of companies offering DIAs has doubled since the start of 2012. In late 2014, insurance companies began promoting DIAs modified for use as QLACs, and this trend is expected to boost sales in 2015.

Lifetime Income Illustrations

Despite significant industry objections, the Department of Labor's has continued its quest to require sponsors to deliver lifetime income illustrations to participants. In 2014, the Employee Benefit Research Institute's Retirement Confidence Survey found that most participants would welcome such information.

NARAB II

It's possible that federal legislation will pass during 2015, authorizing a new association with federal authorization to license insurance producers in all states. Called NARAB II, this initiative could be a catalyst for increasing access to retirement planning advice from qualified professionals licensed to serve all of a plan's participants, regardless in which state they work. You can read a detailed analysis by the National Association of Insurance Commissioners and the Center for Insurance Policy and Research: http://www.naic.org/cipr_newsletter_archive/vol3_prod_licensing_narab2.htm

Trends and Outlook

Momentum in the U.S. annuity industry is shifting. Over the last four quarters, variable annuities have had net outflows totaling $4.8 billion, and the weakest segment of the VA market has been products with lifetime income benefits. Insurance companies keep retreating from these products due to the high costs of hedging and reserving for living benefit guarantees. In short, VAs are not the industry's guaranteed retirement income solution of the future.

Two other guaranteed income designs have received attention:

• Contingent Deferred Annuities are wrappers that plan sponsors can add to guarantee a floor of lifetime income, regardless of performance in underlying ("wrapped") investments. The National Association of Insurance Commissioners has finalized model state laws for CDA disclosures and advertising. However, there has been little momentum in the marketplace behind them to date.

• Variable Defined Benefit Plans offer individual accounts, in which each participant earns a benefit based on investment performance of plan assets. However, a floor level of retirement income is guaranteed at retirement date, regardless of market outcome. While VDBPs are designed to replace traditional DB pensions, they don't address one key objection of plan sponsors – namely, employer contributions must increase if investment performance falls short of the plan's return assumption. With health care costs constantly rising, few employers are willing to face the unpredictable plan funding costs of VDBPs.

The DIA, on the other hand, has several points in its favor:

• As guaranteed retirement income solutions go, it is relatively simple to explain.

• It can be chosen in participant-directed plans on an individual basis, and can be a default investment choice.

• It can draw upon conventional plan funding sources – e.g., participant deferrals and employer matching – so it doesn't increase liabilities of plan sponsors.

• Guaranteed retirement income can be increased incrementally as the participant nears retirement.

• Potentially, the DIA can be made portable, to go with the participant over a work career.

• DIAs have a built-in barrier to "leakage" – loans or withdrawals during work years.

• DIAs potentially are a long-term buy-and-hold source of funding for U.S. stock and bond markets.

• DIAs can provide predictable guaranteed retirement income and longevity protection based on mortality pooling, with a large enough base of annuitants to reduce the impact of adverse selection.

• Private insurance companies will provide guarantees, rather than the federal government. This will free the government's resources for tackling the immense Social Security/Medicare funding challenge ahead.

The Swiss Model

The fastest growing category of annuity sales in 2014 was fixed indexed annuities, which now account for more than half of all U.S. fixed annuity sales.  These contracts guarantee to protect principal while linking the credited interest rate to a stock market index. IRI believes fixed indexed annuities will continue as a driver of annuity sales growth in 2015.

By combining DIAs with market-linked annuity indexing, what would a defined contribution retirement plan investment option look like?

It could work somewhat like Switzerland's private pension plan system. Swiss employers and employees each make mandatory contributions into cash-balance plan-like individual accounts. Benefits are funded to produce a retirement income equal to 60 percent of final income, when integrated with the Swiss equivalent of Social Security, and benefits must be paid out as a lifetime annuity, not a lump-sum.

The Swiss model also suggests how the U.S. could eventually mandate guaranteed lifetime annuity participation in 401(k) plans for today's young people – namely: "If you want to maximize your Social Security benefits, you must provide a minimum level of guaranteed retirement annuity income on your own." Many signs indicate that U.S. Government policy-making is heading in this direction. Higher interest rates, which are expected in 2015, would light a fire under the trends mentioned above.

In summary, defined benefit pensions are not coming back because today's employers, public and private just can't afford them. But the U.S. annuity industry is ready to take up the slack and give something similar to today's younger plan participants, based mainly on their own savings/deferrals.

That "something" is likely to be built on the chassis of today's 401(k)s plus DIAs. If you want to be a go-to retirement plan advisor of the future, stay tuned to the trend!