401k Ideas - Annuities?
Fiduciary Investor recently had a post regarding alternative 401k structures in which they quote some of Zvi Bodie's recommendations. One of the ideas is to offer inflation protected annuities to help participants hedge minimum levels of retirement income. Innovest recently completed a project with a similar idea for one of our defined contribution clients. The client felt participants were wanting some sort of guaranteed minimum income so they first looked at starting defined benefit plan. It turned out that this wasn't very feasible so as an alternative looked into accumulation annuities. While inflation protection was not one of the features offered by the annuities we looked at, the client did decide to go with a variable annuity, which does give the opportunity for significant upside. Additionally, the annuity has a "step-up" feature which each year gives a new minimum guaranteed amount of income based on the participant's account balance. This feature gives significant protection to the downside, especially when the participant has many years until retirement. It is my guess that these kind of products will increase in popularity as people begin to miss some of the protections that previous generations enjoyed from their defined benefit plans.