Some time ago, I wrote a column headlined: “What Is a DB Pension Really Worth?”
The main idea was simple: Conservative retirement planning should assume most (defined benefit) pensions will not pay out 100 percent on the promised dollar. The column offered guidance on how to help clients evaluate the soundness of their pension promises based on the sponsor’s financial health, plan type and funded status.
Although multiemployer private plans face unique challenges, the situation is not much better in some public pension plans, which could face similar benefit cuts in the future. Alicia Munnell, director of Boston College’s Center for Retirement Research, told Bloomberg that Kline-Miller “is letting the genie out of the bottle. Once it becomes legal to cut accrued benefits, then it’s a different world. It’s really precedent-making change.”
DIAs in TDFs
Despite significant industry objections, the Department of Labor’s has continued its quest to require sponsors to deliver lifetime income illustrations to participants. In 2014, the Employee Benefit Research Institute’s Retirement Confidence Survey found that most participants would welcome such information.
The fastest growing category of annuity sales in 2014 was fixed indexed annuities, which now account for more than half of all U.S. fixed annuity sales. These contracts guarantee to protect principal while linking the credited interest rate to a stock market index. IRI believes fixed indexed annuities will continue as a driver of annuity sales growth in 2015.