Pandemic sheds light on importance of reviewing secure retirement options for employees

December marked the one-year anniversary of the passage of the SECURE Act, which is expected to be a gamechanger in the institutional income annuity landscape. It has made it easier for plan sponsors to offer annuities in defined contribution plans. In fact, interest was high among employers who were awaiting clarification on the annuity carrier selection safe harbor. According to MetLife’s Evolving Retirement Model Study, eight in 10 employers indicated they were likely to offer a guaranteed income option within five years of the clarification being issued.

Unfortunately, shortly after the passage of the SECURE Act, plan sponsors’ and employers’ priorities understandably shifted to focus on the overwhelming and pressing impacts of COVID-19. Now employers are grappling with the effects of the pandemic, but there are already lessons to be learned from the experience, particularly as it relates to retirement income needs.

Even before the pandemic, 19% of workers didn’t know when they would retire, and 9% said they never expect to retire. In order to change this, almost all workers and retirees agree — along with 88% of plan sponsors — that it is important for retirees to have a source of guaranteed income they cannot outlive, according to MetLife’s study.

Read more: 5 ways to boost retirement plan participation

That said, the pandemic has shed a light on the importance of taking another look at secure retirement options for employees, including institutional income annuities. Here are three of the key features plan sponsors and employees should understand about IIAs and why they should be offered now, particularly in light of the pandemic:

They protect against market volatility.
Stock market volatility has always been a primary concern among aging employees who worry that economic unpredictability could jeopardize their retirement savings. In fact, according to MetLife’s study, prior to the pandemic, more than two in five workers were already either cautious (35% with their investments or avoided risk altogether (9%). Today, these fears and hesitations likely have been heightened as COVID-19 sparked widespread volatility across the market and has had significant impacts on workers’ retirement savings.

That’s why IIAs — which are guaranteed to generate a steady stream of income regardless of how the markets perform — can be a great retirement plan distribution option for retirees seeking an increased sense of security. When offering a fixed income annuity, plan sponsors can feel confident in letting employees know that their income will be safe, no matter how the market performs.

They are simple and economically efficient.
Recent competition and innovation around retirement income solutions have often created complicated solutions, creating confusion for both employees and plan sponsors. Fortunately, there are simple, easy to understand options available — immediate income annuities and qualifying longevity annuity contracts. What’s more, despite common misconceptions around income annuities, they’re surprisingly easy for plan sponsors to implement.

IIAs are cost-effective for both employers and employees, too. Given that annuities are offered as a distribution option, employees annuitize a portion of their retirement plan savings at the point of retirement. When offered as a DC plan distribution option, with institutional pricing, annuities can be affordable for employees.

They reframe the idea of the retirement plan.
Many plan participants are worried that they won’t have enough money to last through the entirety of their retirement. In fact, MetLife’s study found 81% of plan sponsors agree that workers are delaying retirement because they feel “financially trapped.” Fortunately, IIAs provide a solution that gives employees comfort in knowing that their savings will never run out – no matter how long they live.

While many see their retirement savings as a “proverbial bag of cash” that they will receive in a lump sum at the beginning of their retirement, this isn’t the only option. By allowing employees to annuitize some of their savings, annuities can transform how employees think about retirement, and hopefully ease some of their anxieties when it comes to building a secure financial future.

While most workers and plan sponsors agree that having a guaranteed lifetime income is important, many employees don’t have a strategy in place to make this happen. That’s why employers should consider offering this option to their employees and take the time to educate their participants on the benefits of it. In the long run, it can help them feel a bit more stable and less stressed about their future.