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ACLI Says Annuities Key to Retirement Security - Monday, May 10, 2010

Source: BestWire

ACLI Issues Retirement Policy Recommendations to Obama Administration

Jesse A Hamilton
WASHINGTON

The American Council of Life Insurers has issued its formal response to an Obama administration request for information on how annuities could be used to bolster Americans' retirement options. The group advocates that guaranteed income become a routine part of the employer-based retirement plans fostered by the federal government, also asking that a "limited tax incentive" be applied to annuities to encourage their use.

"People don't have pensions anymore; and with the 401(k), with the defined contribution system we have today, we have to make these decisions for ourselves," ACLI President and CEO Frank Keating told BestWire. "Annuities are an essential part of that retirement planning portfolio."

"We think the most important thing is not to mandate that a fixed annuity be a part of the retirement portfolio, but that companies are encouraged to offer them," said Keating, who was a former assistant secretary of Treasury before serving as governor of Oklahoma. "Obviously, it helps the life insurance industry, but it is good public policy as well."

The U.S. departments of Labor and the Treasury put out a joint request in February, asking for input on annuities in retirement plans, opening a 90-day window for public comment. The federal agencies' major points of interest included the pros and cons of distributing benefits as a lifetime stream of income; why lump sum distributions are chosen more often than a lifetime income option and the type of information participants need to make informed decisions (BestWire, Feb. 3, 2010).

The ACLI also released data from a study that the organization sponsored, exploring pre-retirement workers' views on their retirements and whether they would like employers to be required to offer information on guaranteed-income products and the option to purchase them. According to the survey, conducted by Matt Greenwald and Associates, 90% of respondents favored an annuity option from their employers. "They really think their employers can help them, and they want their employers to help them," Matt Greenwald told BestWire. Among ACLI's recommendations to the administration:

-- The Department of Labor should revise its investment guidance to include lifetime income.

-- The use of longevity insurance -- benefits targeted to a late-retirement period -- should be fostered.

-- Employers should be able to use annuity administrators, pointing out that insurers have experience in managing the administration and risks of annuities.

-- Employers' fiduciary duties should be eased in the selection of annuity providers.

-- Tax incentives should be offered that encourage people to channel retirement savings into annuities.

Keating pointed out that only about a fifth of Americans have pensions, and with current life expectancies, retirement income "may well have to last longer than you worked." The average person has "grotesquely under-saved," he said. So, the ACLI is "grateful" that the administration has been focusing on this area, Keating said.

Greenwald said the survey numbers illustrate why it's important that employers be involved in offering annuities. "Most people do not have professional sources of advice outside of the workplace," he said, pointing out that 54% of the 750 workers in the March survey said they had no professional financial adviser. The Government Accountability Office also released a report on May 4 detailing the challenges -- including the regulatory complexities -- of retirement savings and income. "Aging workers must increasingly focus not just on accumulating assets to ensure an adequate retirement income at the point of retirement, but also on how to manage those assets to have an adequate income throughout their retirement," the report concluded. "Poor or imprudent investment decisions may mean the difference between a secure retirement and poverty, which highlights the need for improving financial literacy."

(Jesse A. Hamilton, Washington bureau manager: Jesse.Hamilton@ambest.com)
May 5, 2010

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