Opinion: 401(k) retirees won’t buy annuities unless they are better designed
July 16, 2019 by Robert C. Pozen
In an unusual bipartisan effort, Congress is close to passing the SECURE Act (Setting Every Community Up for Retirement Enhancement). In a key provision, the Act encourages employers sponsoring 401(k) plans to offer retirees the chance to convert their plan balances into annuities with monthly payments for the rest of their lives.
In specific, the Act establishes a safe harbor protecting plan sponsors from future liability if they reasonably select an insurance company to offer annuities to their retirees and that company later fails to make the scheduled monthly payments.
Congress is adopting this safe harbor because fixed annuities offer significant financial benefits to workers about to retire. Fixed annuities provide pre-set monthly payments for the life of retirees so they will not outlive their savings. Moreover, fixed annuities allow retirees to avoid difficult decisions about how to invest their savings after retirement. And fixed annuities have certain tax advantages — retirees are not taxed until they actually receive their monthly payments.
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