Annuity providers are putting on a full-court press to encourage employers to give serious consideration to incorporating lifetime income solutions to their defined contribution plan participants, either in-plan or as a rollover option.
Last week, for example, TIAA-CREF, the large retirement plan system primarily serving educational institutions, issued its second annual lifetime income survey which, perhaps not surprisingly, found that Americans are woefully ignorant on the subject of annuities.
The surveys major thrust is this pair of incongruent statistics:
1. Nearly half (48%) of the polling sample state that the primary goal for their retirement plan would be to provide guaranteed money every month to over living costs in retirement.
2. Sixty-five percent of Americans are not familiar with annuities, described by TIAA-CREF as the only sure way besides Social Security or a pension to guarantee a steady steam of income in retirement.
Annuities? What are they?
Familiarity with annuities correlates with age: Only 26% of Americans in the 18-35 age bracket, and a larger minority (48%) of people closing in on retirement (ages 55-64), know about annuities.
With such a low awareness of annuities, predictably, relatively few (29%) either have or intend to purchase an annuity at some point. Sixty one percent have no plans to do so, and the remaining 9% havent decided.
The 48% slice of Americans that picked providing a lifetime income in retirement as their top priority is a big jump from the 34% who had that opinion only one year ago. Some of that must have been at the expense of the 40% of respondents to last years poll who place the safety of their retirement nest egg at the top of their priority list, which dropped to 23% in the current poll.
As with many similar surveys, the TIAA-CREF survey found many Americans woefully behind schedule in building sufficient retirement savings and the situation may be getting even worse. For example, the survey found that only 29% of those polled had begun saving for retirement, and alarming increase, report TIAA-CREF, from the 21% number in the prior survey.
In announcing the survey results, a TIAA-CREF spokesman stated that the findings suggest an opportunity to start the conversation on lifetime income, including annuities, and provide plan participants with the confidence they need in knowing their basic expenses will be covered in retirement.
Meanwhile, the Institutional Retirement Income Council, whose sponsors include top annuity providers including Prudential, Transamerica Retirement Solutions, Great-West Financial Retirement Plan Services and Lincoln Financial, have issued a succinct study titled, Plan Sponsors and Retirement Income: Whats In It For Me?
After identifying a variety of retirement funding solutions that fall outside the employer-employee relationship (e.g. private annuities, longevity insurance and so-called reverse mortgages), the paper poses this question: With so many options available to plan participants at retirement, why would a plan sponsor consider an in-plan solution?
Whats in it for me
The paper offers these four answers:
- Reduce plan expenses. Thats because by retaining those retiree assets within the structure of the retirement plan, sponsors build a greater asset pool than they otherwise would if participants roll account balances over to an IRA at retirement. By retaining those assets, the plan sponsor has greater leverage to negotiate lower asset management and administrative services fees.
- Improve workforce management. By offering participants a retirement income solution, plan sponsors encourage a timely retirement for aging employees before they become unproductive according to the paper.
- Attract and retain employees. The paper cites a 2010 study by MetLife that showed that 44% of employees would like an annuity option in the plan. Therefore, according to the document, plan sponsors who step up to meet these needs will have a competitive advantage in attracting and retaining talent.
- Ensure future success of the defined contribution model. The paper states: In recognition of the governments significant investment in DC plans through tax benefits for employers and employees, these plans must deliver on their promise to successfully convert accumulating savings to retirement income or else leave the DC plan model vulnerable to legislative action that may force a less cost-efficient and less business-friendly model on employers.
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