Longevity insurance has received the Treasury Department's blessing, but it could be years before these deeply deferred annuities become a regular part of retirement plans.

Last month, the Treasury Department and the Internal Revenue Service proposed a package of rules to make it easier for retirement plan participants and IRA holders to invest in longevity insurance - an annuity that people buy as they enter retirement but don't start collecting until they reach their 80s.

The disappearance of the traditional-defined-benefit retirement plan, which gave retirees a stream of guaranteed income for life, as well as retirees' longer lives, helped fuel the Treasury Department's push to make longevity insurance accessible to employees leaving the workplace.

Specifically, one proposed regulation would adjust the way tax laws governing required-minimum distributions form 401(k)s and IRAs applied to these annuities.  Provided the annuity cost no more than 25% of the account balance, or up to $100,000 - whichever were less - and payouts started at 85, the annuity wouldn't be subject to required-minimum-distribution rules until it started paying out income.

Another part of the proposal would allow participants in defined-benefit plans to split their savings into an annuity and a lump sum, as opposed to being required to choose one or the other.

But experts said that it will take considerable groundwork before longevity insurance becomes a regular employee option.  it will require a combination of further regulatory clarity from the Labor Department, increased education for workers and plan sponsors, and a ramp-up in sales suitability procedures for advisers selling these annuities to plans.

"This proposal is at the point where target date funds were 15 years ago." said Harry James, head of retirement plans for Lockton Investment Advisors LLC's St. Louis office.  "It took the better part of 10 years to make them a qualified default investment. [And] it's likely we'll be having this discussion into 2012, 2014 and 2015 before the Treasury [Department] gets something hammered out."

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