Annuities and other private-market products that provide income guarantees could play a major role in improving U.S. workers' retirement income security, life insurer representatives have told federal regulators.
The U.S. Treasury Department and the U.S. Department of Labor recently issued a joint request for ideas about how income annuities and other products that offer income guarantees could be used to improve retirement security.
Many insurers and trade groups have submitted comments.
The list of insurers that have submitted comments includes Teachers Insurance and Annuity Association of America-College Retirement Equities Fund, New York: ING Insurance U.S., Windsor, Conn., an arm of ING Groep N.V., Amsterdam; and Nationwide Financial Services Inc., a unit of Nationwide Mutual Insurance Company, Columbus, Ohio.
TIAA-CREF President Roger Ferguson Jr. says retirement plan investment menus should include low-cost fixed annuities, and that annuities can be especially helpful to retirees with limited resources.
Workers should have access to a fixed annuity that offers a guaranteed return on investment during their working years, but they should not be required to annuitize their entire retirement savings, Ferguson writes.
Partial annuitization options can ease participant concerns about depleting savings or removing financial flexibility, Ferguson writes.
TIAA-CREF has found that about one-third of its participants choose to annuitize some portion of their assets, Ferguson writes.
ING Insurance U.S. says employers should be encouraged to add guaranteed lifetime income options to retirement plan investment option menus.
Guarantees also could be offered through individual retirement accounts and guaranteed income annuities at the individual level, according to ING Insurance.
"Regulations must be simplified and clarified in order to address employer fiduciary and administrative concerns," and "Greater participant communication and education is needed," ING Insurance says.
Like TIAA-CREF, ING Insurance is supporting the idea of offering voluntary partial annuitization options, rather than imposing annuitization mandates, or requiring retirees who annuitize any assets to annuitize all assets.
In general, "offering and investing in guaranteed lifetime income options should be encouraged for employers and employees, but not mandated," ING Insurance says, noting that plan sponsors and plan participants say participants want control over distribution.
Nationwide Financial says recent market conditions have clearly demonstrated the value of income guarantees.
Nationwide Financial has come up with the 401KIncome proposal, which would provide an incentive for employers with defined contribution plans to use the employer match to buy fixed income deferred annuities.
"Employees would still have control over and access to their own contributions, but the employer match would not be accessible for loans or early withdrawals," Nationwide Financial says. "Employees could also choose to put their own deferrals in the defined benefit option."