July/August 2009 / Human Resources
Should Your 401(k) Plan Include an Annuity Option?
More 401 (k) plan sponsors are now considering annuity products, in part because of the hit that the plans have taken in the last year. The author says that as they do so, the plan fiduciaries — generally that means the employer and certain company officials — need to keep a number of issues in mind. Fiduciaries in some circumstances may be personally liable for losses, and if they are not capable of evaluating the annuity options themselves they are duty-bound to retain experts who can.
The evaluation should begin with numerous proposals. The fiduciaries need to look at the prospects for each insurer’s long term viability, the plan’s cost, and such issues as whether and how male and male and female participants may be treated differently. Fiduciaries also may need to consider where the plan invests money and whether the selection might be tainted by conflicts of interest. Some distribution provisions may present special issues in the context of the a 401 (k) and may need to be negotiated with the insurer up front. Sponsors and fiduciaries can short-circuit these concerns by accommodating individual annuity purchase by plan participants, outside of the 401 (k).