Employers who offer 401k plans seem intrigued by the notion of providing an annuity option to employees who participate in the plans.
Recent stock market volatility makes the prospect of stable, guaranteed income very attractive in theory:
Given the stock market’s volatility, Silgan is one of a number of 401(k) plan sponsors seriously discussing adding an annuity option to their 401(k) plans. With most employees’ 401(k) accounts decimated, the idea of providing guaranteed post-retirement income seems attractive, experts say.
In reality, though, employers or "plan sponsors" have been hesitant to jump on board with annuities in 401k plans:
- Only 4 percent of employers have an insurance or annuity product as an option in their 401k plans.
- 13 percent of employers say they will add an insurance or annuity product option to their plans in 2009.
- Only 8 percent of 401k plans allow participants to roll-over their account balances into an annuity upon retirement.
- 22 percent of sponsors expect to add this option in 2009.
Concerns about fiduciary liability for options offered within a 401k plan and the general lack of familiarity with annuities are among the obstacles to adoption.
That said, there appears to be increasing interest in offering in-plan guaranteed income options among the policy and consulting communities:
Despite their complexities, consultants believe that employers should think seriously about adding some kind of guaranteed-income option to their 401(k) plans.
"We have this huge drop in the equity markets and individuals aren’t going to retire when they planned to," says Bob Liberto, a consultant with Segal Advisors. "Those organizations looking at the annuity accumulation feature are doing it to make sure that their workforce planning comes to fruition."
Source: Workforce Management
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