Retirement plans adding annuities

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Only 12 percent of large and midsize employers offer a “lifetime income option,” or an annuity, to employees, according to a survey that was published in November 2014 by consulting company Towers Watson. That number is expected to rise because of new Treasury Department rules.

The rules, which were issued in July 2014 and October 2014, pave the way for defined-contribution plans—401(k) or similar savings plans—to add annuities, in part by allowing the annuities to sidestep the required minimum distributions that apply at age 70-1/2.

Annuities that are offered through an employer retirement plan likely will be less expensive than are those that you’d purchase outside of a plan, says Steve Vernon of Stanford Center on Longevity. However, you should compare prices between annuities to get the best deal, he adds.

That can be difficult given that insurers offer so many bells and whistles on annuities, says Olivia S. Mitchell, who is the executive director of Pension Research Council. The best way to compare prices, she says, is to compare annuities that don’t have additional perks, such as inflation protection or a survivor benefit.