The concept has its challenges, though. "The
problem is the pricing," says Dallas Salisbury,
President and CEO of the Employee Benefit Research
Institute (EBRI) in Washington. "You could do it—but
it would be a very expensive option, because any annuity
that can be terminated at the end of two years becomes very
expensive to underwrite." He has seen an estimate that
this type of annuity could carry an additional cost of 400
to 500 basis points.
Edward Ferrigno, Vice President, Washington Affairs, at
the Profit Sharing/401k Council of America, also worries
about any sort of annuity mandate. "We absolutely
think that annuities have a role, and there is no doubt
that the last year's activity has renewed interest in
this area. What is going on that we fully support is a
tremendous amount of innovation [by annuity providers],
he says, but it would kill that innovation if they
mandated something. "For insurance companies, that is a
jackpot: 'We have your money, and you cannot get it
back.'"
A federal guarantee: Some believe that automatic
enrollment in annuities makes little sense without setting
up a federal-guarantee structure for annuities, similar to
the Federal Deposit Insurance Corp. (FDIC) guarantee of
bank deposits. "The need is probably greater, because you
have a lot more people who are nervous about committing
money to a financial institution," Certner says. State
guarantee funds exist, he says, but their terms vary.
"I think it would make a world of difference," Salisbury
says. "It would eliminate a lot of the fiduciary-liability
concerns around insurance-company failures, and the wide
variations across states in what is in place."
On the other hand, "One thing employers might be
concerned about is that the whole arrangement would be
subject to future changes by Congress," says Jan Jacobson,
Senior Counsel, Retirement Policy, at the Washington-based
American Benefits Council, "and it would be a fairly
expensive proposition." Adds Salisbury, "Given the current
fiscal situation, even if people said it was a good idea,
it would take a long time to do."
Channeling employer contributions: Brookings' Gale
also talks about using legislation to funnel employer
contributions to an annuity. "It would be a default," he
says. "[The idea is that] the employer has to offer it, but
it is voluntary for the individual."
That could help with the perception issue many
participants have, Gale says: They do not want to hand over
a large amount of their money in return for what seems like
an unequal series of small payments. "Most people do not
want to buy one gigantic annuity. This would encourage
people to buy an annuity in small chunks throughout their
lifetime," he says. "It is like dollar-cost averaging in a
mutual fund."
Credico likes the idea, since employers give matches to
help ensure employees' retirement security. "If I am
going to care about your retirement security, I want to
make sure that you have some income for the rest of your
life," she says. However, Salisbury cautions that "there is
still the front-end issue of the willingness of plan
sponsors to move forward with these types of options, given
the fiduciary issues. There is not a whole lot of employer
interest at this point."
Ferrigno does not favor the idea at all. "We would fight
that to the death," he says, again mentioning a dislike
of plan-design mandates. "If there was a demand for
annuity products in a plan, they would be there. There is
no demand. It seems like a lot of people are jumping to the
conclusion that we have a national crisis because people
do not annuitize enough of their income."