Confusing Options May Be Coming to Your 401(k). It Could Cost You.

“The insurance companies won’t sell budget, simple immediate annuities — the kind most of us want,” said Teresa Ghilarducci, a professor of economics at the New School for Social Research and an expert in retirement policy. “They will sell variable annuities that are typically complicated and overwhelmingly expensive to be appropriate for most families.”

There is often little benefit to saving your money inside products like variable annuities over many decades because of the high costs, experts say, which leaves you with less money once you reach retirement.

Some employers, including United Technologies, have already experimented with complex annuities. After it closed its pension plan for new workers, the company created an option that invests a portion of workers’ savings in a variable annuity. And executives from the investment giant BlackRock said they were working on other ways to include guaranteed income streams in retirement plans.

“These next generation products need to be simpler, cheaper and more transparent,” said Dan Basile, head of product management for BlackRock’s defined contribution business. “That is where we are focusing our innovation efforts.”

[Read more about changes included in the retirement legislation.]

The legislation is intended to make employers — who must act as fiduciaries, and choose the best retirement plan options for workers — more comfortable embracing annuities. And as more states and employers struggle under the weight of their pension obligations and look for alternatives, they may increasingly look to annuities.

Employers have long been reluctant to include annuities among their retirement offerings because they feared being sued if an insurer could not make the guaranteed payments — something that could happen decades after affected employees left the company.

The legislation would assuage those concerns by adding a provision that protects employers from liability in such cases. If the insurer went insolvent, retirees would be able to seek redress from state insurance guaranty associations, which provide a backstop to their benefits up to certain limits.

Article source: https://www.nytimes.com/2019/06/04/your-money/retirement-bill-annuities.html?emc=rss&partner=rss