U.S. Retirement System's "Guarantee Gap" Leaves Americans at Risk of Outliving Their Savings

TIAA offers six policy recommendations to help ensure Americans’ retirement security
New York, October 4, 2017 – Even as Americans spend longer in retirement, few workplace plans incorporate payment options that ensure lasting income throughout retirement, resulting in the “guarantee gap,” according to TIAA, a leading financial services provider. In a new white paper, TIAA offers six concrete, actionable recommendations for legislators and regulators to help close the guarantee gap and to create a more financially secure future for all Americans.
While the U.S. retirement savings system has considerable strengths, the white paper identifies three major weaknesses:
  • Coverage Gap – Not enough Americans have access to a workplace retirement plan;
  • Savings Gap – Even if they have access to a retirement plan, many Americans aren’t saving enough; and
  • Guarantee Gap – Few plans provide resources such as annuities to guarantee savings will last throughout retirement.
Policymakers and other stakeholders are working to address the first two shortcomings. But little has been done to solve the guarantee gap, which has its origins in three significant policy changes over the past 25 years – one in tax law and two in pension policy. These changes created substantial disincentives for employers to provide workers the opportunity to invest in options that guarantee income that lasts throughout retirement.
“Ensuring that American retirees have sufficient income to last throughout their retirement is among the most critical issues facing our economy,” said Roger W. Ferguson, Jr., president and chief executive officer of TIAA. “For nearly 100 years, employees with 403(b) retirement plans have benefited from access to investments that generate guaranteed lifetime income.  All American workers deserve to retire with the same level of financial security – and Washington can play a key role in getting there.”
No single policy change will fix the guarantee gap. But, important improvements are needed to broaden access to guaranteed income in retirement, beginning with the widespread offering of in-plan annuities in retirement savings plans, which can provide a secure source of income.
Drawing on nearly 100 years of experience as a leading provider of in-plan lifetime income solutions, TIAA has identified six common-sense, bipartisan solutions for legislators and regulators to advance the role of lifetime income in retirement savings plans:
  1. Simplify the safe harbor for employers selecting an annuity provider
  2. Increase the portability of annuity contracts
  3. Broaden the qualified default investment alternative (QDIA) regulations so that annuities can become default investments
  4. Provide retirement savings plan participants with an annual lifetime income disclosure statement
  5. Give participants more access to flexible income distribution options
  6. Provide favorable tax treatment for annuity income in retirement
The guarantee gap undermines the very purpose of the retirement savings plan system, which seeks to minimize the risk of poverty among retirees as well as strain on the social safety net. As bipartisan efforts to address America’s retirement crisis continue, policymakers, employers and employees cannot afford to only address the coverage and savings gaps. Restoring the role of annuities in retirement savings plans can empower Americans to protect against outliving their savings.
To download a copy of the white paper, please click here.

About TIAA

TIAA (TIAA.org) is a unique financial partner. TIAA is the leading provider of financial services in the academic, research, medical, cultural and government fields. TIAA has $954 billion in assets under management (as of 6/30/2017) and offers a wide range of financial solutions, including investing, banking, advice and guidance, and retirement services.