Putting Annuities Back into Savings Plans

Abstract

Every year, millions of dollars flow into 401(k)-type and other savings plans. As large numbers of Baby Boomers begin to retire in a few short years, millions of dollars will start to flow out. Most workers will be on their own in managing their savings during retirement because most plan sponsors deliberately restrict their plans to lump sum distributions. This paper explains how legal reforms in the early 1990s increased the risk of fiduciary liability associated with annuities, a well-respected technique for managing income in retirement, and decreased their popularity among plan sponsors. It argues that those reforms, largely intended to protect participants in defined benefit plans, have proved counter-productive for savings plan participants. It then describes how a proposal for a federal charter option for life insurance companies could hold some promise for persuading plan sponsors to put annuities back into savings plans.