Actuaries nudge employers to offer retirement programs

Couple that with market volatility, longevity risk, inflation risk, health risks, and a host of other potential threats and you begin to realize that modern American retirement is fraught with a plethora of potential pitfalls that leave retirees — and society as a whole — vulnerable.

The report implores employers and plan sponsors to actively work to address this troubling trend by offering annuities and systematic withdrawals to their employees. Although a recent Government Accountability Office study found that 44 percent of employees reported that they would like an annuity to be part of their retirement plan, only 6.1 percent of retiring individuals elected an annuity as way to generate income in retirement; immediate annuities, represent just 3 percent of the overall annuity market. The SOA found that the usefulness of annuities is underestimated by retirees. If encouraged by trusted employers and retirement plan sponsors, however, this could change.

A recent Aon Hewitt study found the employers who offer RIGs are more the exception than the rule. One reason for this could be the challenges and fiduciary issues that occur when they are offered. Plan sponsors and employers become burdened with both increased administrative complexity and fiduciary concerns.

In order for employers and plan sponsors to offer RIGs, they need to designate a plan fiduciary, typically the employer of a plan committee, and follow the fiduciary requirements under the Employee Retirement Income Security Act (ERISA). Although this obviously creates some added work, it is a relatively low-cost improvement that is highly valued by workers.

The paper determines that by offering RIGs, employers will benefit from an enhanced reputation as well as improved worker morale.