The Social Security Bridge Option helps improve pension preparedness
The Social Security Bridge Option helps improve pension preparedness

The Social Security Bridge Option helps improve pension preparedness

Social Security Bridge Opportunities May Be the Best New Idea for New Retirees – Since the Last Social Security Rise! It can immediately make retirement ready more of an option. Guaranteed income products, such as annuities, in pension schemes have received a lot of attention lately. The adoption of the Law on the Establishment of any Pension Improvement Community (SECURE) at the end of 2019 made it easier for employers to offer guaranteed income opportunities in pension schemes in the workplace. SECURE 2.0, which is currently under consideration on Capitol Hill, introduces additional provisions that would make guaranteed income potentially more enticing to attendees.

But one new study from the Center for Pension Research at Boston College demonstrated that there is another way for participants in the 401 (k) plan to annuity their savings and create a predictable income stream for life, in addition to using traditional guaranteed income products. Specifically, the study examines a “bridge” option for social security. The Social Security Bridge is where 401 (k) participants could delay the collection of public social security benefits and instead use their savings to pay themselves an amount equal to their social security benefits for several years. This allows them to defer social security and also increase the size of their payout when charging benefits.

According to the CRR study, social security claims could later increase monthly benefits by at least 76% by claiming 70 years (the maximum claimant age) instead of 62, the previous eligibility age. A social security bridge option would allow participants to delay social security and enjoy the benefits of doing so without having to push back their retirement age. The isolated bridge income stream would continue until the retiree reaches the age of 70, at which point they could begin collecting their public social security benefits. This is a victory for employers, who could transfer older employees to retirement on time, as well as potentially reduce health care costs, which tend to increase as the workforce gets older.

The bridging option in a pension plan will automatically allocate a percentage of a participant’s 401 (k) assets to it. The bridge would also be a default setting that utilizes participants’ inertia, much in the same way that automatic enrollment works. In addition, employers could implement a bridge solution without any legislative or regulatory changes.

In the study, CRR asked four different groups for their opinion on a social security bridge option. The following results reflect the views of the control group, who were given minimal information about the bridge option and asked for their answers. In that group, 26.8% of respondents said they would use the bridge and the share of their assets they would allocate to it is 14.9%. For the control group, a bridge strategy would increase their social security benefits by $ 272 per month.

The CRR survey showed that some participants would actually be interested in a standard social security bridge option in their 401 (k) plan. It would be easy for employers to implement, potentially more than a traditional solution with guaranteed income. Given the benefits and potential interest of the participants, a social security bridge option may be worthy of further consideration. It may be beneficial for plan sponsors to first examine their own participant population to measure interest in such an opportunity and then consider acting based on the results. It would also make sense to consult an external adviser and / or ERISA lawyer on the feasibility and fiduciary obligations of a bridge option.

Steff Chalk

Steff C. Chalk is the CEO of The Retirement Advisor University, a collaboration with UCLA Anderson School of Management Executive Education. Steff also serves as CEO of The Plan Sponsor University and is the current faculty at The Retirement Adviser University.

Steff Chalk

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