Here is an idea for smart employers 

Hey, we all know the traditional pension is dead. Too costly, lot’s of administration, accumulating liability and volatility … we get it … sadly

But here is an alternative for employers that want an easy way to keep employees happy, be competitive for workers, control costs and improve the chances of workers having a secure retirement.

The Treasury Department has recently issued regulations allowing annuities as a distribution from 401k plans.

So here is the idea, employers, in addition to their normal matching contribution in the 401k plan, make a contribution as a percentage of pay that is designated only to be distributed via an annuity.

Let’s say the cost of a defined benefit pension is 7-8% of payroll. That percentage (or other percentage) of an employee’s pay goes into the 401k annuity and is only paid that way. In effect, the employer is providing a defined benefit pension, but without the hassle of a separate plan and without the worries of funding and changing interest rates, stock market fluctuations, and endless pages of regulations and compliance reporting. Since this payment is in addition to the regular 401k match, employees will not see it as taking from their available cash distribution – properly communicated, of course.

No doubt the lawyers will have to work on the details like assuring this contribution only goes into the annuity account, how the money grows before the annuity is purchased (perhaps a target retirement fund) and some regulations may need tweaking, but think about the concept. A lifetime defined benefit and a defined contribution with all its flexibility within the same plan and all funded on a defined contribution basis. There is something in this for employers, employees and insurance companies providing the annuity.

Some employers will see this only as an additional cost, smart employers will see it as a long-term strategy to attract and retain a good workforce while still making retirement financially feasible down the line.

Why should employers care? Well, if they don’t do something to improve the state of future retirees, government will and it may cost employers more and it definitely will give them less control. In addition, as the older population grows as a portion of all consumers, their ability to spend will be more important to the economy and to the companies selling goods and services.