By Linda Koco
Annuities did get some votes in a new survey of consultants and advisors about favored retirement income products in defined contribution (DC) retirement savings plans. However, annuities did not outshine two retirement options that plan consultants favor more.
The relatively low profile for annuities comes despite the greater focus that government and retirement professionals have put on annuities during the past year. That focus zeroes in on the value of annuities in creating guaranteed retirement income streams.
Apparently, not all plan consultants have locked onto that value. According to 2015 Defined Contribution Consulting Support and Trends Survey from Pacific Investment Management Co. (PIMCO), less than two-thirds of the 58 DC plan consultants and advisors surveyed “support client interest or actively promote” use of insurance-related products for retirement income purposes.
By comparison, 85 percent said they support or promote at-retirement target date investment options, and 82 percent said they support or promote diversified fixed income investments.
The survey group represented more than 8,500 defined contribution (DC) plan sponsor clients having $3.2 trillion in DC plan assets, according to PIMCO.
The annuity findings
The researchers had asked the consultants to indicate their views on four different types of annuities that are commonly associated with DC retirement income solutions.
A majority (62 percent) did say they support or promote asset allocation with a lifetime income guarantee. However, just 54 percent said they support or promote use of in-plan deferred income annuities (DIAs); 52 percent, out of plan annuities; and 41 percent, in-plan immediate annuities.
The researchers also asked what concerns the consultants and advisors have about in-plan insurance products.
According to PIMCO, nearly all (96 percent) said they are concerned or very concerned about “operational complexity” associated with the products. That is up from 93 percent in PIMCO’s survey last year.
The same percentage (96 percent) said they are concerned or very concerned about portability. This too is up from 93 percent last year.
Other concerns they named were cost (89 percent) and insufficient government support (88 percent)—both also up from last year, by 86 percent and 84 percent respectively.
The increase in concerns about in-plan products seems to be relatively modest. The uptick could be partially the result of the 2015 poll sampling more firms (58) than in last year’s survey (49 firms). Also, some of the new firms may have held views that tilted the results.
However, since the preponderance of concerns was close, the responses can be taken as sentiments that carriers may want address when speaking with plan consultants and advisors about in-plan annuity options.
The fourth concern — about insufficient government support — is a bit surprising in light of all the fanfare surrounding qualifying longevity annuity contracts (QLACs). In July 2014, the Department of Treasury released rules permitting use of these specialized DIA products.
The rules allow DC plan participants and individual retirement account (IRA) holders to move some of their qualified assets into a QLAC. Doing so delays the income that participants take from those assets for several years, reduces the account value upon which the participants must compute required minimum distributions (RMDs) starting at age 70½ , and may result in a modest tax reduction.
Retirement professionals have roundly supported the rules and thanked the Treasury Department, sometimes vociferously, for issuing them.
It may be that the QLAC buzz has not yet impacted plan consultants and advisors. The first QLACs did not hit the market until first quarter 2015, and it will take several months or even a year for carriers to complete rollouts to their target markets. Also, some carriers are first offering QLACs for IRA use, preferring to delay QLACs for DC plans to a later time.
As a result, any attitude of gratitude that may come from QLACs among plan consultants and advisors may take a while to grow.
Strong focus on retirement income
While annuities did not get the highest marks from plan consultants and advisors, PIMCO’s researchers found that the large majority of advisors do put a lot of importance on retirement income for plan participants. For example:
- Nearly all told the researchers that, in target-date strategies, it is important or very important to evaluate glide path structures, fees, diversification of underlying investments and “the probability of meeting retirement income objectives,” among other attributes.
- 35 percent ranked maximizing asset returns while minimizing volatility relative to the retirement liability as the most important objective when evaluating target-date glide paths.
- 31 percent ranked maximizing income replacement during retirement as the top goal for target-date glide paths.
- None said that maximizing expected retirement savings balances was the most important objective.
“Consultants increasingly want target-date funds structured so they can meet an investor's income objectives when they retire,” Stacy Schaus, executive vice president and DC practice leader, said in releasing the survey results. “They clearly prefer strategies that will minimize the risk of a plan participant falling short when she retires.”
Those words — “income objectives” and “minimize the risk of a participant falling shore” — sound similar to comments that annuity professionals make about using annuities for retirement planning, whether inside a qualified plan or outside (in the individual retail market). Could it be that consultants and advisors will warm up to annuities if the annuity “concerns” spotted by PIMCO begin to abate?
InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at [email protected].
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