In previous commentaries for Insurance News Net, we highlighted specific reasons for rolling employer-sponsored funds into annuities. They were:
• Controlling savings choices
• Minimizing management through consolidation
• Defraying costs
• Protecting money from market losses
• Ensuring savings last a lifetime
• Transferring all your funds efficiently and quickly
• Legally directing payments after death
In case you missed the articles they can be found here and here.
But wait, we found yet another. You can’t make this up folks. Recently we were sent this teaser by one of our news feeds:
“Sponsors of defined contribution (DC) retirement plans are slowly embracing lifetime income solutions to help employees improve their financial security in retirement, according to a new survey by Willis Towers Watson, the global advisory company.”
That statement was produced by Willis Towers Watson and was related to the findings of their recent report. Our reaction? WOW! GREAT! YOU FINALLY LIKE US! YOU REALLY LIKE US!
By “US” we mean ANNUITIES, of course. Unfortunately, the introductory statement isn’t the problem; the actual results are. Employers don’t really like us … yet.
The consulting firm describes lifetime income solutions generally as the “education and tools necessary to help plan participants determine how to spend down accumulated savings in retirement as well as in-plan and out-of-plan options that create streams of income from employer-sponsored retirement plans.”
Sadly, for consumers who are living longer and longer lives in retirement, the survey also found that less than one-quarter of employers (23 percent) have adopted one or more of these lifetime income solutions, while another 18 percent will implement a solution this year or consider solutions for next year and beyond. That’s not retirement savings enlightenment folks.
The survey’s findings are at odds with the Department of Labor and political representatives concerns about preparedness for retirement. The survey found less than one-fifth (19 percent) offer out-of-plan annuities at the time of retirement. Another 21 percent are considering these options for 2017.
Another, sad-but-true finding in the report is most employers today prefer lifetime income education and planning tools, and partial or systematic withdrawals rather than insurance-backed annuities or other managed payout options.
'More Effective Solutions'
Willis Towers Watson, to its credit, described these insurance solutions and managed payouts as “more effective solutions.”
Perhaps the most disturbing finding was the fact that 81 percent of employers surveyed cited fiduciary risk as a very or extremely important barrier, while two-thirds cited cost. Six-in-10 respondents said the market offerings and products were not satisfactory or were too new.
Fiduciary risk? Offering guaranteed, insured income-you-can’t-outlive solutions? Seriously?
Something is wrong in 401k paradise folks. Since there are over 200 lawsuits involving fiduciary breaches over the past year (according to a website devoted to collecting lawsuits), it appears there already may be problems avoiding fiduciary risk.
Our industry offers many annuity insurance companies who provide annuity products in the qualified market space. And, they’ve been doing so for years. But if you’re seriously worried about fiduciary risk, why not offer “in-service” rollovers? This concept transfers the risk and provides employees with effective lifetime annuity income solutions that are consumer-proven and time-tested.
In most industries, the competition for quality employees is intense. Plan sponsors must design their plans to be as attractive as possible to attract employees in a competitive labor market. In-service distribution options provide a necessary benefit to individuals working in today’s highly intense job market.
Americans expect control over their retirement assets. More liberal distribution provisions are positive plan features that are an important part of the employee-benefits-package design process.
More liberal distribution provisions, especially with respect to rollover dollars, free workers from being bound to poor 401k providers, limited choices and high fees.
More plans should allow and encourage employees to roll money into annuity solutions offering income for you or your beneficiaries – or both.
Another distressing fact for Americans living longer and wanting to live adequately is the survey’s findings that one-third of employers sponsoring 401k plans provide in-plan managed account services with a non-guaranteed payout.
Still, only about 22 percent offer an in-plan asset allocation option with a guaranteed minimum withdrawal or annuity component. Less than one in 10 offer an in-plan deferred annuity investment option.
Lifetime Income Solutions
According to Willis Towers Watson, the most prevalent lifetime income solutions are systematic withdrawals during retirement (73 percent), followed by income planning tools (64 percent) and education (60 percent).
The more effective solutions designed to help plan participants develop a steady flow of income in retirement are much less common, even though 71 percent of respondents cited the primary reason for adopting a lifetime income solution was to help participants convert DC plan balances into lifetime income.
Mark Triplett, recently posted a great article on LinkedIn. Mark is the chief business development officer at AMZ Financial Insurance Services and he quoted another article in his commentary that “made him sad.” Here’s an excerpt from the article:
Carol Helton, 61, has watched her retirement account shrink by more than $100,000 over the past several months, the equivalent of about two years’ worth of the income she and her husband hope to have in retirement.
“That’s two and a half more years at least that I have to work,” says Helton, who has abandoned her goal of retiring at 63, realizing she may have to wait closer to 70.
Had Carol been in an annuity, she would not have had to force that decision. She could keep on working for as few, or as many, years as she chose.
Over 53 percent of employers haven’t adopted a guaranteed income solution but, they say they may do so in the future. Americans for Annuity Protection suggests that employers consider “in-service” distribution options. The in-service distribution option allows certain plan participants to receive some or all of their retirement assets while they are still employed.
And, most importantly, allows them to rollover their savings into an annuity that provides guaranteed lifetime income solutions. If employers care about lifetime income solutions and are worried about adding them to an employer-sponsored plan, AAP encourages consideration of in-service distribution options that give employees control over their income solutions.
Annuities protect Americans!
Join us for an exclusive conversation with our panel of experts and learn JUST THE FACTS you need to prepare your annuity business. August 25th, 1 p.m. EST
Kim O’Brien is the vice chairman and CEO of Americans for Annuity Protection. She has 35 years of experience in the insurance industry. O’Brien served The National Association for Fixed Annuities (NAFA) for almost 12 years and led the organization to defeat the SEC’s Rule 151A.
Contact Kim at [email protected]
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