While many defined contribution plan sponsors and service providers worry about getting more regulatory guidance for including lifetime income options, a relative handful of plan executives forged ahead before the regulatory issue became a front-burner topic.
They say they are offering these options because as defined benefit plans decline in number, defined contribution plans are taking on a greater role.
"We wanted to provide employees with a vehicle for greater security via a lifetime benefit that is similar to what is available through a DB plan,” said Bonnie LeVan, senior manager for compensation and benefits at Rogers Corp., Rogers, Conn., whose 401(k) plan has $70 million in assets.
Rogers closed its DB plan to new employees in January 2008. It began offering the annuity option to 401(k) participants in May 2007.
Paychex Inc., Rochester, N.Y, added an annuity option to its now $448.5 million 401(k) plan in May 2007. “Many of our employees knew someone who had a pension, and they wanted a pension-like investment,” said Will Kuchta, vice president of organizational development. Paychex lacks a DB plan, although it looked into creating one before deciding to add the annuity option to its 401(k) plan.
Although the motivation and experiences of these early adopters can serve as case studies for hesitant plan sponsors, acceptance of annuities embedded in 401(k) plans has moved glacially.
A recent Towers Watson survey of corporate 401(k) plan executives found that about 2% of plans offer annuities as an investment option, said Robyn Credico, the Arlington, Va.-based senior retirement consultant. The survey covered 334 companies, each with 1,000 or more employees.
A survey by Callan Associates, San Francisco, said annuities embedded in DC plans were offered by 4.7% of plans in 2009, up from 2.7% of respondents in 2007 and 3.3% in 2008. The survey covered 90 DC plans, most of which are 401(k) plans.
And a 2009 Hewitt Associates survey of 302 companies showed 7% offered annuities as an investment option, while 2% said they planned to offer them in 2010.
“Sponsors say the participants aren't asking (for annuities as an investment option) and providers say the sponsors aren't educating the participants,” Ms. Credico said.