Oh, how changes in the market can make people change their minds. For example: When you retire, would you rather have a guaranteed rate of return on your retirement money and a check every month, or a potentially higher return on a lump sum payout subject to the risks of the market? These days, a lot of participants would choose the guaranteed payout because of market uncertainty. Hence the surge in interest in an annuity option within 401(k) plans.
If the question is all about finding a way to turn 401(k) funds into a lifetime stream of income, is an in-plan annuity option the answer? After all, a retiree can always purchase an annuity in an IRA funded by a 401(k) rollover. And for participants, in-plan annuity options have numerous disadvantages — complexity, investment choice, portability, life expectancy and expenses, to name a few. For the plan sponsor, drawbacks include administrative complexity and expense, as well as fiduciary liability.
Before an annuity option goes mainstream in DC plans, perhaps what’s needed first is a new, more evolved type of annuity product better suited to that purpose. Lose the disadvantages, add an early withdrawal mechanism, allow a portion to be reserved for heirs and resolve various tax issues, for example.
What are your thoughts? Use the comment box below.
