Statement of Mark J. Warshawsky Director of Retirement Research Towers Watson for the Joint Hearing of the Departments of Treasury and Labor on Certain Issues Relating to Lifetime Income Options for Participants and Beneficiaries in Retirement Plans

As is well-documented, private sector employers have been moving away from traditional defined benefit pension plans for more than a decade. These plans generally pay benefits to a participant as a life annuity, thereby providing a fixed stream of lifetime income at retirement. Employers have moved toward defined contribution and hybrid plans, that is, individual account plans, which are almost always designed to pay benefits as a lump-sum. There are many reasons for this trend, but the focus of the Departments in your request for information and in this hearing is on the consequences for plan participants in terms of lifelong security during retirement and whether government policy can play a positive role in this particular area. Stated more directly, the operative questions are whether something important is being lost by the steady decline in mandatory annuitization, and if yes, whether there are products or strategies that can replace, in whole or in part, what has been lost. Finally, if such products and strategies are reasonably available, a further question is how the government can encourage their adoption by individual account plan sponsors and participants.