It’s a bit like making too much of pre-season football (only not as annoying). It’s only been a year since the Treasury Department and the IRS issues final rules for including qualifying longevity annuity contracts (QLAC) in 401(k)s, and the Employee Benefit Research Institute is already looking into the their impact on retirement readiness.
EBRI notes that in recent years, “the prospect of increasing individual interest in annuitizing retirement savings has been enhanced through an insurance product designed to provide monthly benefits only after a significant deferral period in retirement.”
It analyzes of the ability of QLACs to provide an effective longevity hedge for boomers and Gen Xers who are simulated to participate in an in-plan offering either through a 10-year series of laddered purchases or as a one-time purchase based on the accumulated value of employer contributions from the current employer.
The findings?
“Even at today’s historically low interest rates, the purchase of these products may provide a significant increase in retirement readiness for the longest-lived quartile, compared with only a small reduction for the general population,” according to Jack VanDerhei, Ph.D., the reports author. “Sensitivity analysis on the QLAC premiums resulting from likely increases in future interest rates provides even more favorable results.”
This makes it likely that 401(k) plan sponsors will offer deferred annuities as part of the non-equity component of the TDF. EBRI plans to model the potential impact of such a TDF on overall retirement readiness in the near future.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of 401(k) Specialist and Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots. Experienced financial services content executive specializing in creative new media delivery. He joined the American Retirement Association in 2023 as Chief Content Officer, overseeing communications for the organization, as well as its sister organizations.
