Congress Eyes Annuities as Way to Bolster Retirement Security

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June 17, 2010 Thursday 03:53 PM EST

733 words

Congress Eyes Annuities as Way to Bolster Retirement Security

Jesse A Hamilton

WASHINGTON

Annuities, which have been getting a lot of attention from lawmakers and federal agencies hoping to strengthen Americans' retirement plans, were the subject of a congressional hearing analyzing their place in the employer-based retirement system. At that hearing of the Senate's Special Committee on Aging, federal agencies who have been seeking input on guaranteed income said the response has been vigorous and they would soon host a public hearing on this topic.

"We need to provide employers with more guidance, more tools and more protection to encourage them to offer a range of options to their employees," the committee's chairman, Sen. Herb Kohl, D-Wis., said at the Senate hearing. He said he's been "encouraged by the recent innovations in the financial services industry to develop new products that will help retirees manage their savings. This is a rapidly developing area and we want to encourage employers to consider offering such products to meet their workers' needs."

But he said he wanted to be clear that he opposes any kind of mandatory use of annuities. "No one should be forced to purchase a lifetime income product," he said. "I will not support any kind of mandate for consumers, because we recognize there is a wide range of circumstance and need."

At the same time, Kohl also sent a letter to the Government Accountability Office to request a review of how current regulators make sure that financial institutions that sell annuities will be able to meet those financial commitments and how state guarantee funds may figure into that.

"Annuities can certainly be a very good and appropriate part of many individuals' retirement and financial planning," Brian Atchinson, president and chief executive officer of the Insurance Marketplace Standards Association, told BestWire. "The whole thing, I think, is moving in the right direction," he said. But his organization's primary focus is on making sure that "the necessary safeguards are in place, and that there be very clear and high standards."

The American Council of Life Insurers has been excited to see such an interest from lawmakers and the administration. "This is just great that the Hill is engaged in this topic," Alane Dent, a vice president for federal relations at ACLI, said in a telephone interview. She said the organization is realistic about the difficulty in getting anything done in this current, hectic congressional session as it winds down toward elections, but she said this attention is a good signal for the future. "The groundwork is getting laid for a very robust discussion next year."

Sen. Susan Collins, R-Maine, pointed out the importance of the topic, saying during the hearing that a "tidal wave of retiring baby boomers will be imposing unprecedented burdens and challenges for both the Social Security system and for private pensions."

Fourteen percent of employers offer annuities as a rollover or outside option in retirement planning, according to a recent survey by Hewitt Associates. Though Kohl cited that number in his remarks at the hearing, suggesting it as a low number, he didn't mention the Hewitt survey's additional statistic that -- in 2010 -- 28% of employers said they were likely to add annuities as a retirement planning option. However, the same survey showed that only 2% of employers offered annuities as internal components to plans for current participants, and few companies said they were likely to grow that percentage.

"Encouraging workers to consider guaranteed lifetime income options, such as by facilitating the availability of longevity insurance and partial annuitization, represents sound public policy as the baby boom generation reaches retirement age," William Mullaney, president of the U.S. business division of MetLife Inc., told the committee in his testimony.

Kohl has already supported legislation that would encourage annuity use. In December, he and other lawmakers introduced a bill that would designate a new requirement for retirement plan statements, having them outline the expected monthly income payment from each account rather than just the overall value -- an idea to simplify planning for how much money is needed to sustain a retirement (BestWire, Dec. 4, 2009).

Metropolitan Life Insurance Co. has a current Best's Financial Strength Rating of A+ (Superior).

(Jesse A. Hamilton, Washington bureau manager: [email protected])

June 18, 2010

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