The Department of Labor announced in early December that it will explore steps it can take to encourage employers to offer lifetime annuities or similar options as a method of distribution from defined contribution plans, and it appears that plan sponsors are listening.
In a survey released December 17, 2009, Watson Wyatt says that 22% of employers sponsoring defined contribution plans currently offer an annuity as a distribution option. Ten percent of those not offering annuities indicated that they are considering adding them.
“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 employers cited a lack of participant demand (56%) and administrative complexity (36%) as the main reasons they have not yet used annuities as a distribution option.