More 401k plans are adding “Guaranteed Lifetime Income Options” contracts as investment options. GLIO contracts are annuity contracts, whose underlying assets are investments in stocks & bonds, backed by insurance companies. These annuities may be purchased by plan participants through a lump sum payment or as a regular premium payment. Since the participant receives monthly payments in retirement, some might consider these annuities as a way to reduce the risk that the participant will outlive their investments. The idea of a guaranteed check every month for the rest of their lives can give participants a sense of security that other investments cannot.
When plans consider offering these annuities they need to remember that even annuities are not without risk. Will this insurer be around 40 years from now? If its financials don’t look sound, it won’t be around to make those monthly payments to the participant. Your state may guarantee some portion of the funds, but the amount guaranteed is usually limited.
The fees associated with GLIO contracts are usually more expensive than other plan investment options and the portability of such investments from the plan can be difficult. If a participant should attempt to roll such options over to another plan, the other plan might not accept the annuity contract. Participants might face charges for transferring annuity contracts to a different provider, decreasing the level of the guarantee. This should be a concern for those with fiduciary responsibility who have such plans and are considering changing plan providers.