19 November 2018

Employees Want Annuities In Benefit Plans

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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 said.

Some insurers have already launched annuities specifically for employer groups.

Prudential Annuities 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 Employers

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 percent.
  • 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 $100,000.

Critics say defined contribution models haven’t lived up to their promise and point to underfunded 401(k) retirement accounts as proof.

Click here for the original article from Insurance News Net.

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