BOSTON – Uncle Sam wants you. Or at least he wants your opinion about your retirement plan. Yes, the Labor and the Treasury departments want to know whether you think requiring employers to offer lifetime annuities as a rollover option to retiring workers is a good idea.

We ”are soliciting public comments (to determine) what steps to take to enhance retirement security for workers in employer-sponsored retirement plans through lifetime annuities or other arrangements that provide a stream of income after retiring,” said the Labor and Treasury departments in a recent release.

Typically, you get to do one of three things with your 401(k) when you leave your employer. You can roll your money into an IRA, leave it behind at your employer, or transfer your money to your new employer’s plan.

Most folks roll their 401(k) into an IRA and invest the money in stocks, bonds and mutual funds, none of which address the issue of longevity risk and none of which provide a guaranteed stream of income for life.

What’s on the table right now is the notion that workers who leave their job be given the option to invest some or all of their 401(k) money into an annuity that would provide income for life – just like a traditional defined benefit and Social Security.

Lawmakers, policymakers, academics and industry executives say adding annuities as an investment option or as a rollover option is one way of helping retirees make sure they don’t outlive their nest egg. It’s an option that’s often offered to workers in other countries.

You likely have plenty to share with Uncle Sam. But just in case you need help getting your creative juices flowing, here’s a snapshot of what some retirement experts are saying about the government’s plans to add annuities to retirement plans.


The government’s efforts are misplaced, according to Kerry Pechter, editor of the ”Retirement Income Journal” and author of ”Annuities for Dummies.”

Those saving and investing for retirement don’t lack for product. ”There are already lots of perfectly practicable income solutions available to people,” Pechter said.

”That’s not the problem. The problem is that most people cannot afford them. Most people don’t accumulate enough through defined-contribution plans to fund annuities that will sustain them for 25 years of leisure,” he said. ”The 401(k) system is a very rickety foundation on which to try to build a reliable lifetime-income scheme. The middle class needs more money, not more tools.”

Others have a different take. The Labor and Treasury departments’ proposal is on the right track, said Moshe Milevsky, author of the just-published ”Your Money Milestones: A Guide to Making the 9 Most Important Financial Decisions of Your Life” and an associate professor in finance at the Schulich School of Business at York University, Canada.

From the get-go there should be an acknowledgement that the economic value of annuities comes from the so-called ”mortality credits” that accrue to the survivors at the expense of those who are deceased,” Milevsky said. ”Any proposal to mandate, give preference or safe harbor to annuities should make sure to distinguish between the name (or) label ‘annuity,’ and what the annuity is intended to achieve. There should be a litmus test that an annuity should pass before it is given favorable treatment in the eyes of the Labor Department. Just because a securities lawyer or insurance regulator calls it an annuity, doesn’t mean an economist does.”

It’s important to understand that some – although not all – people view their 401(k) as part of their financial legacy, as opposed to a nest egg, Milevsky said. ”For consumers who value bequests, annuities are not optimal nor do they belong in the optimal portfolio. We must make sure that policy accounts for different strengths of bequest motives, as it accounts for different risk attitudes.”

There ought to be a variety of products offered and advocated along the annuity spectrum, as opposed to a garden-variety, single premium immediate annuity, or SPIA. ”When the dust settles, let’s make sure not to bless only one model, or one color, one type,” Milevsky said.

As has been proposed in recent legislation, employers’ 401(k) plans ought to report two numbers on every single 401(k) statement, said Milevsky. ”No. 1 is the current market value of the account, and the second is the income this would provide – starting at age 67 – if the entire amount were irreversibly annuitized today,” he said. ”This will give people a very accurate indication of how close or far they are to achieving their retirement income goals.”


Meanwhile, insurance and mutual-fund executives see the addition of lifetime annuities as a rollover and as an investment option inside the 401(k) as a necessary arrow in the quiver.

”Plan sponsors are looking for guidance around how to prudently evaluate retirement-income options,” said John ”Jamie” Kalamarides, a vice president at Prudential Retirement. ”Clarification would enable more plan sponsors to offer guaranteed income in their defined-contribution plans and be a major catalyst for these products, providing relief to the millions of Americans who are at risk of outliving their assets.” Of note, Prudential is among those firms already offering annuities to 401(k) participants.

Suffice to say Uncle Sam is about to get an earful.


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