Human Resources: Adding Annuities May Be Next Frontier in 401(k) Plans

WASHINGTON, Aug. 6, 2007 – Faced with the possibility that a growing number
of employees will outlive their income in retirement, companies will likely
consider offering annuities as a new investment option in their 401(k)
plans, say experts at Watson Wyatt Worldwide, a leading global consulting
firm.

“With the baby boomers beginning to retire, we will soon see how the first
generation to be more reliant on 401(k) plans than traditional pensions
makes do,” said Robyn Credico, national director of Watson Wyatt’s defined
contribution practice. “Current and future retirees will have to pay more
attention to details than previous retirees did. Many will not only find
they have not saved enough, but also will struggle with what to do with a
lump sum payout they will have to stretch over the rest of their lives.”

Unlike traditional pensions, most of which provide a regular payment to
retirees, retirement savings in 401(k) plans are usually distributed as a
lump sum. As a result, it is up to retirees to manage their savings. Some
purchase annuities on the open market, but the prices for such products are
generally quite high and are significantly affected by interest rate
fluctuations and other factors.

“Purchasing an annuity adds another level of complication to retirement,”
said Mark Warshawsky, director of retirement research at Watson Wyatt.
“Employees must not only plan out their investment strategies, but also
purchase annuities at the right time. Waiting a few months can mean the
difference of hundreds of dollars in their monthly annuity income if
interest rates change. ”

As employers consider offering annuities to boost workers’ retirement
security, many are looking for a broader range of products – from simple,
institutionally priced immediate and deferred annuities at retirement to
flexible, portable in-service annuities.

“It’s to employers’ advantage to help ensure employees have sufficient
retirement income. Otherwise, they may see a generation of workers who
cannot afford to retire,” said Brian Hersey, an investment director and
senior consultant with Watson Wyatt. “Having enough to live on and not
outliving one's savings are the primary concerns of most retirees. Actively
managing lump sums is a huge challenge, even for advanced investors. It is
time for the investment industry to step up with a range of institutionally
viable solutions to meet these needs.”

Watson Wyatt has published a white paper about employer options in offering
annuities. The paper can be found here. More information on the volatility
of annuity purchases made on the open market can be found here.

About Watson Wyatt Investment Consulting

Watson Wyatt Investment Consulting, a division of Watson Wyatt, is focused
on creating financial value for institutional investors through
independent, best-in-class investment advice. The firm provides coordinated
investment strategy advice based on expertise in risk assessment, strategic
asset allocation and investment manager selection to some of the world’s
largest pension funds and institutional investors. It has more than 300
associates in Europe, the Americas and Asia. In the United States,
investment advisory and investment consulting services are provided by
Watson Wyatt Investment Consulting, Inc., which is a subsidiary of Watson
Wyatt Worldwide, Inc. Watson Wyatt Investment Consulting is a registered
investment adviser with the Securities and Exchange Commission.

About Watson Wyatt Worldwide

Watson Wyatt (NYSE: WW) is the trusted business partner to the world’s
leading organizations on people and financial issues. The firm’s global
services include: managing the cost and effectiveness of employee benefit
programs; developing attraction, retention and reward strategies; advising
pension plan sponsors and other institutions on optimal investment
strategies; providing strategic and financial advice to insurance and
financial services companies; and delivering related technology,
outsourcing and data services. Watson Wyatt has 6,700 associates in 31
countries and is located on the Web at http://www.watsonwyatt.com/.

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