Security in Retirement: New Annuity Plan Options

Abstract

With a looming retirement crisis and many baby boomers concerned about outliving their assets, it is important to recognize the role that employers can—and perhaps should—play in educating workers on ‘living in retirement.’ But education, although important, may not be enough. Employees also need new options to complete their 401(k) plans, particularly options that provide guaranteed income in retirement. Annuities are one such option, enabling employees to invest a portion of their 401(k) assets in a product that provides a guaranteed stream of income in retirement. However, until recently many companies were unsure how existing guidelines on the selection of an annuity provider applied to defined contribution plans. The Department of Labor’s recent Advisory Opinion has made it easier for plan sponsors to offer annuities as a 401(k) plan distribution option. The inclusion of an annuitization incentive provision in a significant piece of pension legislation introduced this year further underscores the importance of encouraging today’s workers to focus on guaranteed income in retirement.