Ensuring Retirement Savings Last

America’s workplace retirement plan system has steadily transitioned over the past five decades from one where employers predominantly offered a defined benefit pension plan for workers – if they offered a retirement plan at all – to now where private sector employees are four times as likely to have access to a defined contribution plan, like a 401(k).   

Given this reality, Congress has focused its recent retirement policymaking efforts on automating defined contribution plan design features, like auto-enrollment, auto-escalation of saving percentages, and auto-portability of savings when workers leave the plan. These features can powerfully increase the amount of retirement savings workers accumulate through their careers.

Congress has also given attention to perhaps the toughest question confronting individuals with a pot of retirement savings from a 401(k) plan – how to make that money last throughout their lifetime with efforts to facilitate the use of annuities. Annuities allow retirement savers to replicate a traditional pension plan’s guaranteed lifetime income stream. 

Several types of annuities are available with different features that can be tailored to best fit an individual’s needs and financial objectives. Annuities are the only individual financial product that guarantees lifetime income and the peace of mind that comes from knowing that one will never outlive their retirement savings.       

While more can be done to facilitate retirement savings, Congress also has an opportunity to build on its previous efforts and support sound savings decumulation with policies that will ensure lifetime income lasts throughout retirement. To that end, ACLI has put forward a set of new guaranteed lifetime income proposals that aim to further embed annuities in the defined contribution plan ecosystem.

ACLI proposes that defined contribution plans be required to provide an option for 401(k) plan participants to choose an immediate single or joint & survivor annuity upon retirement.  Participants aged 50 and older should be allowed to use in-service rollovers to purchase a deferred income annuity. Rules should be updated to permit the use of an in-plan annuity through default investments. And the model retirement savings rollover notice should be updated to highlight the ability for an individual to purchase an annuity. 

With these policy changes, Congress can finish the job and put the best policy structure in place to give savers the peace of mind throughout retirement that they deserve.