“Safe” Annuity Retirement Products and Possible Future U.S. Retirement Risks, Threats, and Shortfalls

This article examines a looming possible crisis in many Americans’ retirement plans due to the proliferation of annuity products in their retirement investments. As defined benefit pension plans have almost completely disappeared as a means of retirement savings and have been replaced by defined contribution retirement plans over the last forty to fifty years, a great number of private and public sector defined contribution retirement plans have become laden with insurance contracts called annuities. Of the remaining solid defined benefit plans, many, through a process called “pension risk transfer,” are being converted to high-risk single-entity annuities. Such products have been sold to employers and employees as “safe” and “guaranteed” financial instruments that are just as good as a defined retirement benefit plan backed by Federal Pension Benefit Guarantee Corporation insurance. The results of the analysis in this article call this into question and shows that these annuities are a symptom of the financialization of capital during the neo-liberal era, which relies upon consumer bounded rationality; asymmetric information that exists between companies selling annuitants and the pension fund managers who buy them; and moral hazard that results when state agencies claim that they can cover the liabilities of insolvent insurance companies.