Employers who sponsor
retirement plans are beginning to explore offering annuities to employees, a
retirement expert said.
The trend comes at a time when
employees say they want their employers to help them convert 401(k) plan assets
into a steady retirement paycheck.
Some companies started
offering annuities in their retirement plans soon after the Pension Protection
Act in 2006, while many other companies held off until stronger legal
protections were in place. The law introduced changes to encourage the use by
employers of automatic enrollment features in 401(k) plans.
“Other employers are waiting
for more safe harbor guidance and rules, but we are seeing employers getting
ready and preparing for that today,” said Roberta Rafaloff, vice president of
Institutional Income Annuities at MetLife.
As more rules fall into
place, plan sponsors will select annuity providers and offer annuity solutions
in their defined contribution plans, she said.
Meanwhile millions of
employees approaching retirement are looking to their employers for help.
“Employers are hearing that
people want predictability and help in how to convert retirement savings in
defined contribution plans into some sort of guaranteed paycheck,” Rafaloff
Some insurers have already
launched annuities specifically for employer groups.
recently unveiled a simple deferred income annuity, known as GIFT, or
Guaranteed Income for Tomorrow to employers and associations who are clients of
Prudential Group Insurance.
The annuity is being offered
on an after-tax, employee-paid basis only via payroll deduction or electronic
funds transfer. Only client employers and associations are eligible to make
GIFT available to employees or to members.
Employees Looking to
Among the findings of
MetLife’s Role of the Company Survey:
- When asked if they would prefer having their
employer set aside a retirement paycheck for life or provide them with
money to invest themselves, the steady paycheck wins by 58 percent to 42
- Employees are six times more likely to want
companies to be more involved, not less, in providing for their retirement
security in the next five to 10 years, (61 percent vs. 9 percent).
- Workers have accepted that they are on their own
with 54 percent saying individuals are primarily responsible for their own
retirement security versus 27 percent who say companies are responsible
and 19 percent who say government is responsible.
- 74 percent of respondents said they would prefer
setting aside part of their salary in a company-sponsored retirement
account compared to 26 percent who preferred paying into Social Security.
- Even when asked to choose between saving on
their own or paying into Social Security, going it alone was preferable by
56 percent to 44 percent, the survey found.
- Only 14 percent of baby boomers say they want
the government to be primarily responsible for retirement security,
compared to 24 percent of Millennials.
“Employees across the
generational spectrum say they want help from their employers,” Rafaloff said.
Pension Elements to DC Plans
Only annuities offer a
guaranteed income that people can’t outlive and a generation or two ago
corporate pension plans invested in annuities to deliver steady income to
retired employees until the day they died.
But over the past 30 years
companies gradually froze pension plans as companies found them expensive and
exposed corporate balance sheets to too much risk.
Companies instead moved to
the more efficient defined contribution plans better suited to a flexible and
transient workforce, but with the shift more and more workers only have their
401(k) accounts to stand on.
While trillions of dollars
sit in 401(k) accounts, the average account balance is closer to about
Critics say defined
contribution models haven’t lived up to their promise and point to underfunded
401(k) retirement accounts as proof.
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