U.S. Department of Labor REPORT: 2018 Advisory Council on Employee Welfare and Pension Benefit Plans

Ghilarducci provided the following testimony before 2018 Advisory Council on Employee Welfare and Pension Benefit Plans on June 19, 2018. Read the entire testimony here.

6 KEY FINDINGS

1. The issue of annuities in DC plans concerns about 20 percent of 28 million near retirees who are the most affluent and 25 percent of all retirement assets.

2. Experts conclude retirees need annuities to avoid anxiety and hardship; and people want secure lifetime income, but near retirees don’t buy annuities creating a market failure in annuity provision;

   • Annuity markets fail because annuities are private insurance products which suffer from lack of pooling, adverse selection, and the profit requirement, all which makes annuities too costly:

3. Best annuities come from Social Security and the Bipartisan Policy Center Commission on Retirement Security and Personal Savings agrees;

4. Plan sponsors are unlikely to offer annuities because the cost and complexity likely can’t meet ERISA reasonable protective standards;

5. Even if all sponsors offered annuities, the effect probably won’t “move the needle” for the majority of the 28 million workers aged 55-64 because they don’t have a DC or IRA plan or their assets are under $100,000;

6. Most older workers– about 28 million in 2018 -- would be helped more by delaying claiming Social Security than buying a commercial annuity and most plan sponsors – employers who have good intentions would appreciate guidance about how to help their employees.

Bottom Line: We need to do what we can to help employers offer advice for people to create their own temporary annuity that bridges the gap between retirement and claiming. The DOL should provide safe harbor education tools for employers.