Financial services firms are urging Congress to adopt retirement savings reforms in the next few years and are readying products that could profit from them.
Several executives are recommending that lawmakers make changes that would ensure income from savings lasts through retirement.
Robert L. Reynolds, president and chief executive officer of
"The industry has done a good job of helping people accumulate money," Reynolds said. "Now we need to do a better job of helping people manage their 401(k) plans when they reach retirement."
Robert Clark, a professor of economics and management at
In addition to annuities, Aimee DeCamillo, head of personal retirement solutions at
Putnam has projected that annuity assets will reach $5.5 trillion by 2020. There were $1.7 trillion as of Sept. 30, according to the
Beyond traditional annuities, Reynolds said there is a need for a federally insured product for investors to place 401(k) assets to "ensure that they have assets that will last their lifetime."
"I think this could be in an annuity or an annuity-like structure, but nothing is certain," he said. "This is where the work has to be done."
Changes in retirement savings plans over the past three years have proven beneficial, Reynolds said.
The Pension Protection Act of 2006 required employers to enroll all employees in 401(k) plans, though employees may opt out. That drew more assets into the system, as did the growth of target-date funds.
But more attention needs to be paid to what happens once workers retire, industry officials and other say.
A study in June by Bank of America Merrill Lynch found that 45% of retirees and pre-retirees between 55 and 75 years old had not calculated how long their assets will last.
"Most people have unrealistic expectations," said Katherine Roy, a strategy and innovation executive for Bank of America Merrill Lynch Retirement Services. "It is somewhat of a train wreck. People need to recalibrate and understand what they will face in retirement."
Other research has netted similar results. According to research by the
Dallas Salisbury, CEO of the Employee Benefits Research Institute, said he expects little retirement reform from Washington before 2012 or 2013, "so that puts the onus on the individual" in the meantime.
Companies have already started offering products that do not require new laws.
In July, Putnam Investments, which had $13.6 billion of defined contribution assets on Sept. 30, launched the RetirementReady Funds, a suite of target-date funds that integrate target absolute return strategies with traditional relative return mutual funds.
The funds are designed to lower volatility during accumulation and pursue a higher level of income for investors in retirement. Reynolds said these funds have "half to a third" of the volatility of typical target-date funds. He said he expects these funds to add assets as retirement plans are augmented.
Analysts said companies like Putnam are looking to create a retirement system that enables them to retain customers — and their assets — after retirement. Burton Greenwald of BJ Greenwald Associates said that a "staggering" percentage of retirees receive their 401(k) assets in "one lump sum" when they retire. "This is bad news for the investment companies and worse news for investors," he said.
Historically, annuities have not been used the right way for retirement, said Tim Clift, the chief investment officer of
Reynolds is optimistic policymakers will start tackling retirement savings issues sooner rather than later.
"2010 is going to be the year we debate these issues on a national scale," Reynolds said. "Once the healthcare debate is behind us, retirement income security will be the issue for 2010. Annuities need to become more transparent, less complicated and less costly to become part of the long-term solution."
