Only 22 percent of employers offer an annuity as a plan distribution option in their employees’ defined contribution plans, a recent Watson Wyatt Worldwide survey found. Additionally, 10 percent of sponsors who don’t offer an annuity are considering it.
The main reason cited by employers for not offering an annuity was simple lack of demand among participants. Over one-third of employers were scared away by the product’s complexity.
Previous research from the firm found that “employees’ interest in life payout annuities is strongly influenced by how the pros and cons of longevity insurance are weighed.”
“Managing lump sums is a huge challenge — even for experienced investors. Given last year’s steep decline in retirement savings, employers can expect employee attitudes towards annuities to shift, as perceptions of risk are heightened,” Mark Warshawsky, director of retirement research at Watson Wyatt, said in a press release.
There are clear benefits for employers, though, Warshawsky added. If not for employees’ indifference to annuities and some providers’ deficiencies, plan sponsors could predict and plan for their employees’ retirements easily. “It’s a cycle that can be broken by employers through the design of good distribution strategies for retirees and effective communication to make the advantages of such annuities clear to employees.”