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Mind the Income Stream

The Obama Administration wants to encourage 401(k) participants to use annuities, but workers show little interest.

By Susan Kelly | Updated on March 01, 2010

In the latest attempt to improve defined-contribution plans, annuities are being touted as a way to turn employees’ 401(k) savings into an income stream that will last retirees the rest of their lives. Interest in providing annuities to 401(k) participants seems to be picking up steam, with the Obama administration recently signaling its support for making annuities available. But it’s not clear that any changes the government makes to promote the use of annuities within defined-contribution plans will have much effect. Plain and simple, participants don’t seem interested in using their 401(k) savings to buy annuities, and it’s not clear what companies can do to change their minds.

A recent survey by HR consultancy Hewitt Associates shows just 2% of 401(k)s offer annuities or some other retirement income solution within the plan, while 14% provide annuities as a rollover option outside the plan. In a sign of the momentum in this area, 28% of employers say they’re likely to add some sort of annuity product to their plan this year. But a 2006 Employment Benefit Research Institute report indicates just 7% of employees choose to use some portion of their 401(k) savings to purchase an annuity.

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