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More Americans Want 401k Annuity Plan Option


A recent study from Prudential Retirement found that one of the items at the top of employees’ wish lists is not readily available in their 401k plans. Of those Americans who are familiar with guaranteed lifetime income options like annuities, over three-fourths of them would be likely to choose that option if it were available within their 401k plan. This information comes from the 401k Specialist article, “One Thing 401(k) Participants Want More Of In Their Plans,” by John Sullivan. But unfortunately for those Americans, the vast majority of 401k plans do not include a guaranteed lifetime income option from a 401k annuity. You have to do it yourself when it comes to creating income from your 401k savings.

Just over 35,000 401k plans currently offer guaranteed lifetime income options though annuities. That number represents only 4% of 401k plans. The top reason given by plan sponsors for not including 401k annuity options in their plans may surprise you. Most sponsors just don’t think that employees are interested in this guaranteed lifetime income option and don’t believe they would opt for it given the opportunity. There is definitely a disconnect here because plan sponsors want their employees to have financial stability that lasts for the rest of their life, but they aren’t helping their employees create a lifetime income stream from their 401k retirement savings. The gap between the options offered in these plans and the available options that could guarantee lifetime income through annuities is large and also, unnecessary.

When plan participants who are knowledgeable about guaranteed lifetime income options were asked how important it was to have these options in their workplace retirement savings plans, 78% of them said that it’s very important. Almost all of those same people said they would choose to add this 401k annuity option if it was available in their own retirement plan. More than half of those surveyed said that having guaranteed lifetime income options as a default would make their retirement outcome better than average. Eighty percent plan to use their retirement plan savings as their main source of income throughout retirement, even above Social Security. Auto-enrollment is important to almost 3/4 of those surveyed. Close to half of the people are worried that their current retirement plans won’t allow them to meet their retirement goals. Finally, the study found that Millennials are the most excited generation when it comes to automating features in retirement plans and using guaranteed income options like annuities.

As Americans, we no longer have guaranteed pension income like many of those who came before us did. We have to create our own pensions from workplace retirement plans like 401k’s. Study after study shows how important it is for employer sponsored plans to offer guaranteed lifetime income options through 401k annuity products. These options should be offered as a default and set up through automatic features. This allows 401k plan sponsors to meet their employees’ retirement income needs and overall retirement goals. They can help maximize their growth by aiding the choice of investments and creating guaranteed retirement income through 401k annuity rollover options.

Written by Rachel Summit

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