More Employers Considering Annuities in 401(k) Plans, Watson Wyatt Survey Finds
December 17 2009 - 11:00AM
PR Newswire (US)
WASHINGTON, Dec. 17 /PRNewswire-FirstCall/ -- The number of
employers planning to offer annuities to participants in their
401(k) plans is expected to grow as companies look for ways to
provide workers with a steady distribution of benefits during
retirement, according to a survey by Watson Wyatt, a leading global
consulting firm. This finding comes on the heels of an announcement
by the Department of Labor in early December that it will explore
steps it can take to encourage employers to offer lifetime
annuities or similar lifetime distribution options in their defined
contribution (DC) plans. In its survey, Watson Wyatt found that
nearly one in four employers (22 percent) that sponsor DC plans
currently offer an annuity as a distribution option, and 10 percent
of those who do not offer one are considering adding it. There are
various kinds of annuity options in 401(k) plans that generate a
guaranteed lifetime income. Some of these are investment options
available to younger employees while they are still employed and
contributing to their 401(k) plans, while others are available at
the time of retirement. The Watson Wyatt survey was conducted in
March and April 2009, and included responses from 149 employers.
"Annuities in 401(k) plans were rarely discussed a few years ago,"
said Robyn Credico, a senior retirement consultant at Watson Wyatt.
"But in the recent economic downturn, employees without traditional
pension plans could not retire because their 401(k) balances were
decimated. With this weakness in 401(k) plans now exposed, more
employers are exploring ways to minimize their employees' exposure
to risk -- including the use of annuities." The survey found that
the main reasons plan sponsors did not offer an annuity were a lack
of participant demand (56 percent) and administrative complexity
(36 percent). Also, separate Watson Wyatt research conducted
previously found that employees' interest in life payout annuities
is strongly influenced by how the pros and cons of longevity
insurance are weighed.* "Managing lump sums is a huge challenge --
even for experienced investors. Given last year's steep decline in
retirement savings, employers can expect employee attitudes towards
annuities to shift, as perceptions of risk are heightened," said
Mark Warshawsky, director of retirement research at Watson Wyatt.
"There are also clear benefits for employers, who would find it
easier to predict and plan for employee retirement. However, due to
a perceived lack of demand as well as shortcomings of many
providers' offerings, the market for annuities is still seen as
immature by plan sponsors. It's a cycle that can be broken by
employers through the design of good distribution strategies for
retirees and effective communication to make the advantages of such
annuities clear to employees." For more information, please visit:
http://www.watsonwyatt.com/dctrends. * U.S. Surveys of Older
Employees' and Retirees' Attitudes Toward Lump Sum and Annuity
Distributions From Retirement Plans About Watson Wyatt Watson Wyatt
(NYSE:WWNASDAQ:WW) is the trusted business partner to the world's
leading organizations on people and financial issues. The firm's
global services include: managing the cost and effectiveness of
employee benefit programs; developing attraction, retention and
reward strategies; advising pension plan sponsors and other
institutions on optimal investment strategies; providing strategic
and financial advice to insurance and financial services companies;
and delivering related technology, outsourcing and data services.
Watson Wyatt has 7,500 associates in 33 countries and is located on
the Web at http://www.watsonwyatt.com/. DATASOURCE: Watson Wyatt
CONTACT: Ed Emerman for Watson Wyatt, +1-609-275-5162, ; or Steve
Arnoff of Watson Wyatt, +1-703-258-7634, Web Site:
http://www.watsonwyatt.com/
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