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More Annuities May Come to an Employer Retirement Plan Near You

annuities in employer retirement plans

The American workplace has seen remarkable advancements over the past 20 years. From technology that has revolutionized the way we work, to the physical environments we work in, to the changing workplace conditions, almost every facet of the American workplace has been modernized. Every facet, it turns out, except, perhaps, the workplace retirement plan.

But American workers may soon benefit from new options within their retirement plans, thanks to several bipartisan bills. The pieces of legislation are currently under review by a congressional subcommittee, and they are designed to update the Employee Retirement Income Security Act (ERISA).

"Many ERISA provisions related to retirement plan administration are in desperate need of updating, with some having last been revised over two decades ago," according to Rep. Tim Walberg, chairman of the Subcommittee on Health, Employment, Labor and Pensions.

Walberg voiced this opinion during a recent hearing on "Enhancing Retirement Security: Examining Proposals to Simplify and Modernize Retirement Plan Administration."

Proposals Give Employees New Options for Lifetime Income

Chief among these bills is H.R. 4604, the Increasing Access to a Secure Retirement Act of 2017. It would pave the way for allowing guaranteed income options, such as annuities, in workplace retirement plans. The proposed legislation also spotlights the value of lifetime income for Americans at a time when household retirement savings and overall retirement readiness are down, as many studies suggest.

The Insured Retirement Institute (IRI) testified before the committee that it supports H.R. 4604 because it establishes "clear guidelines" for employers who want to add annuities to the options within their retirement plans.

According to the IRI, current Labor Department rules prevent "most employers offering lifetime income products because they don’t have the technical or financial resources to meet the unclear requirements of the [fiduciary] rule." By contrast, the IRI believes H.R. 4604 provides "a workable and appropriate path for employers to meet their obligations when choosing an annuity provider."

All Eyes on Lifetime Income

Tim Walsh, senior managing director at TIAA, contends it’s time to go beyond just allowing employees to accumulate assets.

Testifying before the committee he advised, "Ensuring that American retirees can count on not only having sufficient assets, but as importantly, income that is guaranteed to last throughout their retirement is among the most critical issues facing our economy over the next generation as Baby Boomer retirements accelerate."

Walsh offered TIAA’s strong support for H.R. 4604 during the hearing, saying, "In essence, H.R. 4604 allows fiduciaries to rely on the true experts in evaluating an insurer’s financial strength—the state regulatory bodies. We strongly believe that, as proposed, H.R. 4604 would clear a significant hurdle to the availability of annuity products on employer-provided retirement plan menus," Walsh said.

Agreement on the Importance of Guaranteed Retirement Income

Policymakers have exhibited a growing interest in Americans’ need for guaranteed lifetime income.

In 2013, the U.S. Government Accountability Office (GAO) released a study that said, in part, "As older Americans retire, they may face rising healthcare costs, inflation, and the risk of outliving their assets. Those entering retirement today typically face greater responsibility for managing their retirement savings than those who retired in the past. Lifetime income products can help older Americans ensure they have income throughout their retirement."

As Congress considers whether to update ERISA, American workers are expecting action. According to a recent survey by Prudential Financial, retirement security is the top issue Americans want congressional candidates to discuss on the campaign trail during this year’s mid-term elections.

In fact, 80% of those surveyed ranked retirement security as a top concern. Job security came in second at 75% followed by taxes at 74%.

The study also found that close to 3 out of every 4 Americans surveyed were concerned about their financial security in retirement. More than half (54%) said they expect to delay retirement due to inadequate savings. Meanwhile, 56% would turn part of their retirement account balances into guaranteed lifetime income payments if they were offered the chance, Prudential found. 

"American workers across the board are concerned about their financial security in retirement, and they're looking for help wherever they can get it, including from their employers and policymakers," says Ann Kappler, deputy general counsel and head of external affairs at Prudential.

Motivation to Save More for Retirement

Another new bill making its way through the legislative process is The Retirement Enhancement and Savings Act of 2018.

This is a bundle of small changes designed to increase voluntary retirement savings. And it can’t come too soon—Americans are facing a serious retirement savings shortfall, according to a study released at the first of the year.

The study by the National Institute on Retirement Security used data from the U.S. Federal Reserve. Its conclusions? Americans’ retirement savings "are dangerously low" and the U.S. retirement savings deficit is estimated to be between $6.8 and $14 trillion. The news gets worse when you consider the study found the median retirement account balance is just $3,000 for working-age households and only $12,000 for households nearing retirement.

The Retirement Enhancement and Savings Act of 2018 could help that cause in a few ways. It would allow participants to think in terms of lifetime income—and not just accumulated balances—by requiring benefit statements to include lifetime income estimates at least yearly. Providing an estimated monthly income flow could be a better indication of the share of living expenses 401(k) accumulations would cover in retirement.

Promoting Other Goals for the Retirement Security of All

This Act would also improve the portability of lifetime income options from one plan to another, allowing plan participants to preserve their options and avoid surrender charges and fees.

The ultimate goal? To better prepare Americans for a rewarding retirement by motivating them to save more once they see how their retirement assets will—or possibly won’t—satisfy their income needs during retirement.

Need Help Planning for Your Personal Income Retirement Goals?

While these bills are promising, they are still a work in progress. The good news is that, overall, working-age Americans generally have many options for strategies generating dependable lifelong income. With careful planning and preparation, establishment of these strategies in a portfolio can help strengthen retirement confidence and security.

If you want to see if you can take more steps toward your income goals, or if your existing strategy could be enhanced, financial professionals are ready to help you at SafeMoney.com. Use our "Find a Financial Professional" section to connect with someone directly. Should you need a personal referral, call us at 877.476.9723.

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