Actuaries and mathematicians will tell us that the “actuarial cost” of any annuity you may purchase is effectively the same, no matter what sort of annuity you purchase. After all, your life expectancy is what it is; the interest rates are what they are; and the insurance companies investments supporting the lifetime guarantees are what
“Decumulation” of retirement benefits has shifted from defined benefit plans to defined contribution plans. I had written in 2009 that the demise of the DB plan was inevitable because of the rise and fall of plan sponsors. It is one thing to rely upon an employer’s current funding of the accumulation of the lifetime income benefit through its employer sponsored retirement plan; it is quite another to expect that same employer sponsored plan to actually provide the guaranteed retirement payout over the retiree’s lifetime.DC plans can avoid this fate.
Continue Reading Avoiding Studebaker
There are substantial efforts underway throughout the retirement market, attempting to wrap minds around the various aspects of providing lifetime income from DC plans. This incudes efforts to design new programs and how to explain them to sponsors, fiduciaries and advisers who must make the ultimate selection election between competing choices.This will not only involve getting familiar with a whole new vocabulary, but ultimately there needs to be at least a working knowledge of the different types of annuities which may be in play in any of these designs.
Continue Reading Building a Lifetime Income Product
There have been a significant number of developments since then, not the least of which being the SECURE Act providing three key new provisions to support lifetime income from DC plans (with the new annuity provider safe harbor, the new lifetime income disclosure rules, and the new lifetime income “portability”); invigorated efforts by all sorts of financial service companies to provide a variety of different lifetime income programs; and, finally, a growing sense by plan sponsors and participants that lifetime income guarantees are important (see, for example this recent TIAA survey).
Even for all of this excitement, elements of that “annuity fog” I wrote about 13 years seem to continue to linger. I suspect it still has to do with the market’s continuing basic lack of understanding and how guarantees work in a defined contribution retirement plan…
Continue Reading The DC Annuity Fog, Revisited
This is a pretty exciting time in the DC marketplace. Years of work from a number of different quarters seem to be finally beginning to coalesce on the notion of sanely “decumulating” assets from DC plans. I wonder if a measure of this all may not be the growing catalog of acronyms associated with annuities,…