6. Time Is Ripe for 401(k) Sponsors to Revisit Pacts
As defined-contribution plans continue to become the retirement savings vehicle of choice for employers, competition among the record keepers servicing these plans is expected to increase.
10. Benefits & Compensation
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Motorola and BHP Billiton are among the companies considering this option.
By Jessica Marquez Comments 0 | Recommend 0
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the 25th anniversary of the 401(k) approaches in January, plan creator Ted Benna has
a lot of concerns.
Benna, now COO of Malvern Benefits Corp., a 401(k) plan
administrator, designed the first such plan for the Johnson Cos. in 1981 to give
employees the ability to save money on their own. But as 77 million baby boomers
begin to retire, he worries that many of them will not have enough income during
their retirement.
"Making sure the retirees can manage their money into an income
stream is going to be a forever issue," he says.
Ninety-five percent of employees take lump-sum distributions
from their 401(k) accounts when they retire. Instead, employers should educate
workers about the benefits of sweeping their savings into an annuity and taking out
money over a course of several years to make sure it lasts, says Dallas Salisbury,
president of the Employee Benefit Research Institute.
Unfortunately, most companies are so focused on bottom lines,
they aren’t thinking of the long-term effects of retirees running out of money, he
says. "Companies have to move away from worrying about what the Wall Street analysts
think about them this quarter to doing things to protect their market 10 to 20 years
from now," he says.
"If you give participants a
choice, they will take lump sums every time." --Michael Weddell, retirement consultant at Watson Wyatt Worldwide
IBM addressed this issue by introducing an online service
developed by Hueler Cos., based in Eden Prairie, Minnesota. The service allows
employees to plug in their information and receive price quotes for fixed annuities.
Benna predicts that more companies will follow IBM’s lead. "When big companies do
something, others tend to follow," he says.
Motorola and BHP Billiton, an Australian mining resources
company, are starting to discuss adding annuity options to their menus. Motorola’s
concern about offering an annuity is that employees will think that the company is
recommending that they use it and thus could be held liable if an employee loses
money in the long run, says Randy Boldt, director of global rewards.
BHP is addressing the retirement income issues through
quarterly educational sessions, says Dan Helman, team leader, retirement services.
The sessions include an explanation of what annuities are, but not recommendations of
specific products.
The debate on Social Security reform and the changing
demographics of the workforce are bringing this issue onto the radar of employers,
but it’s still not a pressing issue for employees. "If you give participants a
choice, they will take lump sums every time," says Michael Weddell, a retirement
consultant at Watson Wyatt Worldwide.
Providers will have to overcome the stigma that comes with the
notion of annuities as being high-cost, bad investments, Hueler Cos. president Kelli
Hueler says. " ‘Annuities’ is a very confusing and scary word."
Workforce Management, August 2005, p. 53 --
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Jessica Marquez is New York bureau chief for Workforce Management. E-mail editors@workforce.com to
comment. Next Article: 4. Halting Defined-benefit Plans
A chart showing how many companies are freezing or terminating their pensions.
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