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More employers eye annuities for defined contribution plans

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While only a small percentage of employers with defined contribution plans give participants the option to convert their lump-sum benefit into an annuity, that percentage is expected to rise, according to a new survey.

The Willis Towers Watson P.L.C. survey — released Thursday — of 196 employers found that just 19% offer participants an out-of-plan annuity in which participants select an annuity provider using a third-party service or tools.

However, 21% of surveyed employers said they are considering adding such an option next year.

“Employees and retirees face major obstacles as they try to save for retirement so they have a regular, adequate income that secures their future,” Bill Dewalt, a senior Willis Towers Watson investment consultant in Atlanta, said in a statement.

“Lifetime income solutions allow plan sponsors to continue their mission of preparing employees for life in retirement,” Mr. Dewalt added.

Assuring that employees have a steady source of income at retirement has become an increasingly relevant issue as employers have moved away from defined benefit plans and only offer defined contribution plans.

While retirees in defined benefit plans receive a lifetime monthly annuity, in defined contribution plans, participants typically receive a cash lump sum when they retire and, if they do not invest carefully, that lump sum can be exhausted long before the individual dies.

Just 20% of Fortune 500 companies last year offered a defined benefit to new salaried employees, down significantly compared to 48% that did so in 2005, according to a Willis Towers Watson survey released earlier this year.

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