Making Employer-Based Retirement Plans Better for Women

The Retirement USA coalition is working hard this month to draw policymakers’ attention to the deficit in retirement income. As Amy described earlier this week, women face a number of special challenges in achieving a secure retirement — and that’s why it’s important to both protect and strengthen Social Security and to ensure that the private retirement system (including employer-based retirement plans) better serves women’s needs.

Recently, the National Women’s Law Center had an opportunity to testify on ideas for improving employer-based plans by expanding access to lifetime income options (such as annuities) at a joint hearing held by the Departments of Labor and Treasury.

Testifying for NWLC, Amy explained how wider availability of annuities through employer plans would be good news for women. Annuities offer a means to stretch women’s retirement savings over an entire lifetime, taking the guesswork out of managing assets — which is important because women live longer than men and spend more years living alone. Many women save enough during their working years to purchase an annuity that at least provides a welcome boost to Social Security benefits.

Right now only a small percentage of employer 401(k) plans offer annuity options for employees. It’s possible to purchase annuities outside an employer’s plan, but women pay higher prices than men on the open market to get the same monthly income (or get less per month for the same investment). But employer plans can’t discriminate on the basis of gender, so women and men receive the same monthly benefit for equal investments. Plus, annuities offered through employer plans may be lower-priced for all — women and men — because employers are well-positioned to negotiate group rates.

Another idea for improving employer plans is to give employees the option of receiving a portion of their retirement account balance as an annuity. Having access to some liquid assets provides peace of mind for retirees in the event of unexpected expenses or emergencies — which is especially important for low and moderate income women who don’t have other savings — but still, an annuity offers security in the form of a steady income stream.

Also, NWLC supports requiring employer plans to accept annuity account rollovers from a worker’s plan with a previous employer. Rollovers would help low and moderate income women who change jobs several times during their working life (and who often interrupt their careers due to caregiving responsibilities) to maximize their lifetime income payments by allowing aggregation of funds into the account to be annuitized.

Finally, it would undermine the benefit to women’s retirement security if lifetime income options from employer plans were expanded, but current-law spousal protections were not applied. For traditional defined-benefit pensions and annuities provided by employer plans, the default benefit is a qualified joint and survivor annuity — an annuity for the life of the employee, plus a survivor annuity of at least 50% for the spouse after the employee’s death. (By contrast, 401(k)’s without annuity options do not include these spousal protections.) Spousal protections have a real impact on women’s retirement security. Women rely much more heavily than men on their spouses’ pension benefits — almost 24 percent of women receive pension benefits through their spouse’s employer, compared to only 7 percent of men. And there’s evidence that pension benefits for surviving spouses make a significant difference in retirement security for low-income women in particular — all the more reason to maintain these important protections.

It’s encouraging that the Departments of Labor and Treasury solicited comments on these important issues. There’s a long way to go before universal, secure and adequate retirement income is a reality for women, and all Americans.