GAO Highlights Annuity Benefits, Policy Recommendations
July 6, 2011 by Sean P. Carr
WASHINGTON July 05 (BestWire) — A U.S. Government Accountability Office
report highlighted the merits of investing in annuity products to protect
retirees from outliving their savings in a time of fewer guarantees. The report
also encouraged the adoption of policies to promote the growth of
annuities.
The GAO identified recommendations from industry and consumer
sources, as well as others, including mandating that sponsors of defined
contribution plans to offer a default annuity and modifying tax law on minimum
distributions for deeply deferred annuities. Another policy proposal would be
for the Labor Department to revise a 2008 regulation that establishes a safe
harbor for the selection of an annuity provider; industry representatives told
the GAO that the current regulation on requiring sponsors to assess the ability
of an insurance provider to make future payments lacks detail.
As more
employers leave defined benefit plans for defined contribution plans, workers
must assume greater responsibility for their retirement security, according to
the GAO report. “Regarding the choices retirees have made, GAO found that most
retirees rely primarily on Social Security and pass up opportunities for
additional lifetime retirement income. Taking Social Security benefits when they
turned 62, many retirees born in 1943, for example, passed up increases of at
least 33% in their monthly inflation-adjusted Social Security benefit levels
available at full retirement age of 66. Most retirees who left jobs with a
[defined benefit] pension received or deferred lifetime benefits, but only 6% of
those with a DC plan chose or purchased an annuity at retirement,” the report
stated.
“The report describes proposals to encourage the availability of
annuities in defined contribution plans, which ACLI supports. GAO’s report
should be read by workers and retirees, as well as financial planners and
policymakers. It makes clear that annuities represent an opportunity for
lifetime retirement income to supplement Social Security,” American Council of
Life Insurers President and Chief Executive Officer Dirk Kempthorne said in a
statement.
The report stopped short of outright recommendations for
investing in annuities. The GAO also determined that delaying Social Security
benefits is more cost-effective for many workers than purchasing an annuity to
enhance retirement income.
Kempthorne reiterated ACLI’s support for the
Lifetime Income Disclosure Act, now before the U.S. Senate Committee on Health,
Education, Labor, and Pensions. Under S 267, 401(k) plans and other products
would have to provide information about both the lump-sum value of retirement
accounts and what that sum means in terms of guaranteed monthly payments, based
on retirement age and other factors. It is sponsored by Sens. Jeff Bingaman,
D-N.M.; Johnny Isakson, R-Ga.; and Herb Kohl, D-Wis. (BestWire, Feb. 10, 2011).
Life insurers testified in favor of policies to promote greater annuity
use, including similar disclosures, at a U.S. Department of Labor hearing last
September. Tom Roberts, chief counsel at ING Insurance U.S., focused on how to
inform employees that their retirement savings could be channeled into annuities
that would provide lifetime income guarantees, and “rules and regulations to
make it easier for employers to select and administer guaranteed lifetime income
products” (BestWire, Sept. 15, 2010).
This topic had also been the focus
of a congressional hearing earlier this year analyzing annuities’ place in the
employer-based retirement system. At that hearing of the Senate’s Special
Committee on Aging, the federal agencies that had been seeking input on
guaranteed income said the response had been vigorous (BestWire, June 17,
2010).
(By Sean P. Carr, Washington Bureau Manager:
sean.carr@ambest.com)BN-NJ-07-05-2011 1639 ET #
