Making guaranteed lifetime income options more readily available through 401(k) plans is a list topper for plan providers—and employers— these days. Here’s why—and an example of how Blackrock is proceeding.
Guaranteed Lifetime Income?
Everyone’s worried that the growing population of retirees—bound for longer lives—will outlive their savings and be unable to cover their daily living expenses. Although annuities offer a solution—guaranteed lifetime income—they can be hard to understand and costly. Since the Secure Act of 2019 eliminated some of the challenges for companies trying to include annuities as an option in retirement plans, providers have been exploring ways to do so. For example, as CNBC reports, Blackrock will be embedding a guaranteed income option in target-date funds:
As part of that gradual shift in investments, BlackRock’s funds will begin allotting about 10% to annuity contracts when you reach age 55. That share will grow to 30% by the time you reach 65.“It’s an asset class within the target-date fund,” said Nick Nefouse, a managing director at BlackRock who heads up the company’s target-date funds franchise.
In other words, you are not actually buying annuities by investing in the target-date fund that will hold those contracts, Nefouse said. “You are buying the option to purchase guaranteed income,” he said.That is, any time between age 59½ and age 72, you would have the option to roll over that portion into a fixed annuity offered by BlackRock’s insurance partners (Brighthouse Financial and Equitable). Fixed annuities generally provide a minimum guaranteed rate of return on your principal. For example, if a 65-year-old male were to use $100,000 to purchase a fixed annuity to start paying out immediately, he would get about $487 per month for the rest of his life, or $5,844 per year, according to Schwab’s annuity calculator.
Highest Duty of Care
Fiduciaries, such as plan sponsors, owe the highest duty of care to the employee retirement plan. That’s why it’s best to protect yourself as you evaluate plan options on behalf of your participants. Under ERISA law, your personal assets are at risk, if you face allegations of a breach in your fiduciary obligations. Keep in mind that even defending yourself from an allegation could be ruinous: the cost of securing guidance from an expert ERISA attorney averages about $600—per hour. Why not obtain Colonial Surety’s affordable fiduciary liability insurance? Then you will be covered for defense costs and penalty limits up to $1,000,000. With an annual premium that is less than one hour with an expert attorney, you will get peace of mind that your personal assets are protected from a breach of responsibility in the administration or handling of the employee retirement plan. At Colonial, it is so quick, easy and affordable to obtain coverage, you can do it right now:
Time To Innovate?
With more information and options for annuities becoming more widely available, your employees are likely to start inquiring about them. In fact, a TIAA survey even revealed that offering annuity options within the retirement plan might be a boost to efforts to recruit new employees in these competitive times. The Society for Human Resource Management encourages: “Being thoughtful about plan design can dramatically improve employees’ chances of accumulating wealth and achieving a secure retirement.”
It’s a best practice for plan sponsors to periodically review the company retirement plan and ensure that it benefits employees, providing the options, services and information they need. Of course it’s always a best practice to make sure that the retirement plan protections are comprehensive—and up to date. Remember, the required ERISA bond protects the assets of the retirement plan from theft; Fiduciary Liability coverage protects you and your assets from personal liability; and, Cyber Liability coverage safeguards your company and plan from covered losses and expenses in the event of a cyber breach.
With Colonial, you can easily and affordably secure this complete coverage package now: Plan Sponsor Package.
Colonial Surety Company is rated “A Excellent” by A.M. Best Company, U.S. Treasury listed and in business all across the country.