Workers, who have a 401 (k) plan and not a pension plan, have to ensure that their savings last them through their lifetime. On the other hand, if the worker has an annuity plan, a lump sum would be given to an insurance company that would agree to pay a monthly amount for life. The option of offering insurance company annuities is being offered by very few 401 (k) plans due to complex regulatory rules. The possibility of an insurance company offering one of the annuities going out of business also deters the plans.

 

Moreover, workers do not wish to part with all their money to an annuity even when annuities are available. As per the Treasury proposal, workers will get the option in the 401 (k) plans to put a portion of their retirement savings into an annuity when they retire. They could protect a part of their savings in this way. The proposal will also remove obstacles to longevity annuities and reduce administrative burdens on employers.