It is beginning to look like the Pension Protection Act will become law, in one form or another. It also is beginning to look like the act will permit employers to provide pre-retirement "financial counseling" without worrying about the potential liability that could otherwise exist.
For quite some time, the federal government has encouraged employers to provide their retiring employees with pre-retirement financial counseling, but few employers have been willing to make the process meaningful.
Two reasons account for this. First, most employers have not believed their human relations personnel were competent enough to provide adequate financial counseling. Second, they did not want to bring outside counselors in to provide the counseling for fear that, if employees implemented the financial counseling and lost money in the process, the employers might be held liable.
The first reason still exists for employers not wanting to try to develop the inside expertise to provide investment counseling for retiring employees. However, the Pension Protection Act will end the second reason and also should provide an opportunity to solve other critical issues for retiring employees.
The life insurance industry has an obligation to grasp this opportunity. It should offer programs to employers that will help employees understand not only what constitutes an effective investment process for retirement but also the critical issue of longevity planning. The provisions of the new act need to give latitude for meaningful counseling in both areas.
Unfortunately, the Pension Protection Act emphasizes only the investment process.
Apparently, the technical experts advising Congress on pre-retirement financial counseling believe that providing information about subjects like diversification and asset allocation will enable employees to resolve all employee financial problems for retirement.
However, even the best investment counseling that is limited to subjects such as diversification and asset allocation cannot alone help the average American successfully plan for retirement. Retirees need to understand the risks of outliving their funds–something seriously lacking right now–and they need to have alternatives to pure investment strategies to hedge against such risks.
Obviously, the only sure method to provide against outliving retirement assets is through the use of a life contingency annuity issued by a legal reserve life insurance company. Annuities are particularly important in this era of the seemingly inevitable elimination of true "pensions" in the form of defined benefit pension plans. Therefore, it becomes critical for retirees to provide their own pensions through the use of life contingency annuities.
