GAO: More Cautions Needed About Retirement Payout Options

That was the bottom line of a study by the US General Accounting Office (GAO), which recommended amending ERISA to add a mandatory participant notice about retirement investing risks – both before and during retirement. “These plan sponsors (canvassed by the GAO) generally did not provide information on considerations relevant to managing assets at and during retirement, such as the potential risks that retirees face in managing their assets or on how to assess needs in retirement,” the GAO researchers wrote.

According to the GAO, there was a steadily increasing percentage of participants between 1992 to 2000 either rolling over assets into an individual retirement account or leaving money in their employer plans. Some 32% of retirees between 1992 and 1994 took one of these options, while that figure grew to 47% by 1998 to 2000. Some 60% of retirees opted to take their assets in the form of an annuity.

Making the situation even more potentially troublesome is the fact that the continuing trend away from traditional defined benefit pensions and toward defined contribution programs makes participants more responsible for managing their assets during retirement, GAO researchers wrote.

To deal with the issue, the GAO recommended possibly encouraging plans to offer annuity payout options as well as possibly beefing up investor education programs focusing on the post-retirement era.   “(Plan sponsors) indicated that participants could make more informed decisions if they were aware of various risks that affect the level of income they need during retirement, such as the risk of outliving their assets and the risk of declining purchasing power,” according to the GAO report. “Participants also need help in understanding how to assess the needs in retirement, strategies for drawing down pension assets during retirement, and how annuities provide retirement income.”

The report is available at http://www.gao.gov/new.items/d03810.pdf .