There is little argument that 401K balances have taken a decent beating over the past several years. Considering most 401K participants invested the lion share of their contributions into equity funds or equity index funds in one fashion or another, it makes perfect sense. Average declines of 15% to 20% are commonly reported across the board, but the baby boomers which are now roughly aged at from 45 to 65 seem to have taken a disproportionate hit.

There are reports of many people in this age bracket losing a full 50% of their retirement savings. These pre retirees held the majority of overall 401K equity and many were nearly 100% exposed to the riskiest of underlying funds that their respective plans had to offer. Unfortunately, many sold at or near the bottom and then and only then moved to a more conservative posture with what they managed to salvage.  Younger participants, not having the large accumulated values, were for the most part able to dollar cost average through the crisis and their new contributions maintained their balances at closer to the high water mark. Many of the eldest participants had already taken a more conservative approach and were likewise not as vastly affected as the group of pre retirees sandwiched in the middle.

Considering the fact that 401Ks have erroneously become a short term savings vehicle for many who use the accounts for home purchases, college education and other large expenses; the baby boomers took the brunt again as they are now facing these expenses head on. Losing half of your retirement, all of the equity in your home and having one or more kids in college at the same time is not a pretty picture.

The government is now contemplating to what degree they will involve themselves with 401K plans going forward. It was even rumored that President Obama was going to give a much coveted ‘shout out’ to the Insurance Industry and purveyors of Annuities during the State of the Union Address, though he ultimately did not.

Europe has long embraced annuities and annuitized income. The term ‘pensioner’ is much more common in Europe than in the United States and the concept of receiving lifetime income as opposed to a lump sum that needs to be managed in order to provide for your needs for the rest of your life is commonly accepted……..Or at least it was. George Osborne has just announced that should a Tory controlled government come to power in the UK, they will “reward those who have saved for their retirement by ending compulsory annuitization at age 75”.  It is a hot button in the UK as negative public sentiment mounts with respect to ‘Nanny States.’.

European countries like Poland, Sweden and the UK all have some semblance of forced annuitization where a retiree is forced to put a minimal percentage of their retirement nest egg into a lifetime income stream. These streams benefit the retirees with the least amount of money to the greatest degree. There are cost of living adjustments to some and they all vary, but the underlying principle is the same. You will take a mandated chunk of your accumulated retirement in the form of an immediate annuity in one form or another.

The United States informally handled retirement in much the same way until late last century when the 401K became commonplace. Prior to that, retirees could typically count on a lifetime income as opposed to a lump sum disbursement and no one thought much of it. The seemingly limitless returns on 401Ks throughout the 1980’s, the relative ease of administering these plans as opposed to defined benefit plans and the underlying guarantee of Social Security all but squeezed define benefit plans out of existence in the private sector.

The Investment Company Institute recently released a survey of 3000 households that indicated more than 70% of the respondents were confident that their current plan would help them hit their retirement goals and 9 out of 10 had a favorable view of 401k plans in general. Considering it could take up to 5 years of additional contributions and growth for many participants to regain their once lofty account values, that is a pretty positive sign.

Many individuals, organized groups and unions already take advantage of annuities for the benefit of their members. There is an ever growing selection of products, features and options in the free and competitive market place and with endorsements by the AARP and other senior organizations, annuity sales do seemed poised to grow. Annuities, however, are not for everyone and certain annuities issued by certain insurance companies are not for anyone. Annuities do have a place in a retirement plan, whether it is for tax deferred growth and accumulation outside of a traditional retirement plan or for the (non mandatory) systematic release of the account value by way of an annuity payment to cover minimum living expenses through retirement.

Then why is it rumored that the Department of Labor and the Treasury department are beginning to put out feelers on how best to strategically employ annuities in 401Ks and other defined contribution plans? Some view it as a proactive measure to thwart a future working class slide into poverty and others view it as little more than a thinly veiled effort to position Insurance Companies to be the buyers of choice for government debt going forward once China and other sovereigns tire of our deficit spending.  One thing is for certain, in the theatre of public sentiment, the push back in the UK could not have been more poorly timed for the Obama administration.