The fundamental reasoning behind a new issue brief of the American Academy of Actuaries Social Insurance Committee provides justification for fixed income settlement vehicles such as structured settlements, deferred income annuities, treasury bond trusts and personal pension annuities.
The brief finds that a defined benefit structure is preferable to a defined contribution structure for providing basic benefits under Social Security. The conclusion was based on a defined benefit structure's ability to tailor benefits that meet the needs of beneficiaries in different circumstances and its general risk-sharing attributes, the actuaries wrote in a new issue brief, "Social Security: Evaluating the Structure for Basic Benefits." Structured settlements and deferred income annuities allow YOU to define future payments (defined benefit).
"A defined benefit structure is more efficient for providing a floor of retirement and disability protection needed by U.S. workers, especially the most vulnerable members of our society," the Academy's Senior Pension Fellow Ron Gebhardtsbauer said. "In many cases, conversions of defined benefit pensions plans to defined contribution plans, such as 401(k) plans, have left Social Security as the only remaining source of a guaranteed lifetime income for many workers."
The committee however did add that a defined contribution approach, such as individual accounts, could be part of Social Security reform as a supplement to benefits provided under the current defined benefit structure.
According to the report, under the current defined benefit structure, risks such as premature death or disability and out-living retirement savings are pooled. Benefits are also not affected by poor market returns, so participants need not worry about investment performance. The actuaries also listed positive attributes of a defined contribution system, such as investment of assets by workers and the opportunity to pass accumulated assets to heirs. But the actuaries note that while these goals are worthwhile, they are not necessarily consistent with the primary purpose of Social Security.
A structured settlement or deferred income annuity belongs at the base of the settlement planning planning pyramid.
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