Public officials turned to employee benefits executives for guidance on how best to incorporate annuity products into retirement plans.
J. Mark Iwry, senior adviser to Treasury Secretary Timothy Geithner, and Michael L. Davis, deputy assistant secretary for the Labor Department's Employee Benefits Security Administration, on Monday spoke at MetLife Inc.'s sixth annual benefits symposium in Washington. During the panel they hosted, they discussed some key legislative changes that will effect retirement planning, and asked audience members for input on integrating annuities into defined-contribution plans.
“The translation from the [retirement] account balance to income stream is something people aren't good at,” Mr. Iwry said. “People are unrealistic about how long they'll live.”
The use of annuities in retirement plans is just one of the concepts public officials have been kicking around. Currently, the Labor and Treasury departments have issued a request for public comments on incorporating lifetime income options into employers' plans. The deadline for submissions is May 3.
Indicators suggest employees want an annuity option in their defined-contribution plan: MetLife's study of employee benefits trends, which surveyed about 1,500 employers and 1,300 employees, showed that 44% of workers would like an annuity option as part of their 401(k), 403(b) or 457 plan. But only 10% of employers say they're “very interested” in providing that choice.
“Employers tell us the Pension Protection Act of 2006 and the safe harbor regulations aren't well-understood by the plan sponsor community, so when they're thinking of fiduciary duty in regards to choosing an annuity provider, they're unsure of their role and the liability,” said Bill Raczko, senior vice president of marketing for U.S. business at MetLife. Counter-party risk and a focus on health care benefits are also holding back employers from considering annuities in their retirement plans.
And though many workers say they want an annuity option, Mr. Iwry noted that in situations when workers can choose between a lump sum and an annuitization of their defined-benefit plan, they tend to take the lump sum.