Insurance companies have been holding meetings with the Labor and Treasury departments in an effort to encourage the use of annuities in retirement savings plans. The Insurance companies believe that the chance of lifetime income should be given to the employee as an option as part of a 401k or separately. They are also pressing to allow fixed annuity rates to become default investments.

Why Do People Shy Away From Annuities?

Annuities have not made the impact on retirement savings that traditional investment plans have because:

• Annuities often have very large maintenance fees
• Annuities are an insurance instrument – not an investment package so they are not insured by the FDIC
• Annuities require prepayment for the policy


Why The Push For Them Now?

Baby Boomers will begin retiring in 2011. Many have seen their traditional retirement plans fail due to the crash in the stock market. Another factor is the lack of pensions. In the past, companies offered lifetime income for employees that devoted their work life to their company. Now, pensions are very rare, if they exist at all. Retiree’s are finding that they will possibly outlive their savings and investments and are turning to different options to secure their future.

Why Is There So Many Issues – Annuities Sound Fine?

Employers are very reluctant to provide this type of plan because of liability and portability problems. Business owners do not want to be held responsible if the plan fails that they have selected and their employees have invested into. This is a very large issue because, as it stands now, employers would be liable for lost money if the plan failed because they selected it for the employee.

Portability is also an issue. If an employee invests into an fixed annuities through the company, and later leaves employment, there are no regulations allowing for the transfer of that annuity to a new carrier. With this in mind, companies would be responsible for the maintenance costs of the annuity for an employee that no longer works there. This is unacceptable to both parties.

With all these issues at hand, the annuity program will take some overhauling before it can competitively compete with other employer based retirement plans.

Lisa Cintron EVP of OnlineAnnuityRates.com