San Antonio, Texas
There is no income orientation in todays defined contribution (DC) plans, contended Garth Bernard at an annuity conference here. In fact, he said, citing industry statistics, only 2% of plan participants actually annuitize plan assets.
A vice president of annuity product management for MetLife, New York, Bernard spoke during a panel at the annual annuity conference sponsored by LIMRA International, LOMA, and the Society of Actuaries. The panel examined annuity strategies that insurers are implementing to help bring more income focus into 401(k) and other DC plans. The strategies include:
Packaging. Package an income annuity as one piece of a larger puzzle, suggested Bernard. This is what MetLife is doing, he said, noting that the insurer offers pre-retirees education about challenges and risks related to future income goals, tools to use to see future income and associated risks, and product innovation that provides a way for participants to bridge the gap between todays contributions and tomorrows income, he said.
Specifically, MetLife now offers plan participants the Personal Pension Builder. This is a fixed deferred income annuity that serves as a supplemental savings plan to complement the existing 401(k). Participants voluntarily make contributions that buy guaranteed income tomorrow at todays prices, Bernard said. The payouts can combine with mutual fund systematic withdrawals to create the retirement income stream. Commuted value from the annuity may be available after income starts.
The rationale: Typical workers and retirees are confused, maintained Bernard. As a result, many just roll DC dollars into IRAs and then systematically draw down these savings for retirement income. “Thats not good,” he said, “because people tend to underestimate how long they will live. They also overestimate how much money they can take out and theyre not aware of the impact of market volatility.”
By contrast, packaging is more holistic, he said. “The annuity is not the total solution but rather as part of a total program.” That includes education about financial challenges and creation of a framework that evaluates alternatives.