(Bloomberg) It should be easier for employers to include annuities in their retirement plans because Americans are at risk of outliving their savings, an insurer has told Labor and Treasury department officials.

The government should extend and clarify "safe harbor" protection, which exempts employers from liability, so they can add annuities as an option in 401(k) retirement plans, said Christine Marcks, president of retirement at Prudential Financial Inc., based in Newark, N.J., at a hearing yesterday in Washington. Annuities also should be permitted as a default investment, Marcks said.

"Some plan sponsors decline to consider offering guaranteed lifetime-income solutions because of a mistaken belief they'll have fiduciary liability if the insurer's financial strength deteriorates in the future," Marcks said.

The two-day hearing, which began yesterday, follows a request for comment from the Labor and Treasury departments that drew almost 800 letters on the issue of lifetime income.

Employers have been reluctant to adopt annuities because of concerns about fees and potential liabilities in picking the insurers. Annuities are insurance contracts that guarantee payments in exchange for upfront payments.

"We have to solve the fiduciary issue first," said David Wray, president of the Profit Sharing/401k Council of America, a Chicago-based nonprofit representing 1,200 companies with 401(k) plans, at the hearing. "Employers want to know: Is my company guaranteeing this payment for the next 30 years? Am I going to get sued?"

Living Longer

Regulators and legislators are looking at Americans' retirement security because life expectancies are increasing and savings have shifted from traditional pension plans-where employers generally provide retired employees with lifetime payments-to defined contribution plans such as 401(k)s, according to the Labor Department. Participants in defined contribution plans increased to 67 million in 2007 from 11 million in 1975, the agency said.

An estimated 47% of Americans born between 1948 and 1954 may not be able to afford basic expenses and uninsured health-care costs through retirement, according to the Employee Benefit Research Institute, which is based in Washington.

Employers are also concerned about fees and how guarantees would be transferred if employees change jobs, said Wray at the hearing yesterday. Last year, 4% of employers offered a 401(k) plan with an annuity built in, according to Lori Lucas, defined contribution practice leader at Callan Associates Inc., a San Francisco-based investment-consulting firm.

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