Annuities got more than a few accolades in a final report issued by the 2015 White House Conference on Aging (WHCOA) on Tuesday. That’s in striking contrast to the bad rap the products sometimes get from longtime annuity foes.
In particular, the report zeroed in on the lifetime income features of annuities, spotlighting how these features can contribute to retirement security.
The Obama administration has been pursuing ways to improve the retirement security of those who participate in employer-sponsored 401(k)-type plans and individual retirement accounts, the WHCOA said in the 87-page document.
One of those ways had been to facilitate “access to, and use of, annuities or other arrangements designed to provide a lifetime stream of income through retirement.”
The report also says why the administration is doing this. “Adding lifetime income options to 401(k)-type plans and IRAs will help transform their savings into future income,” it said, noting this will “reduce the risks that retirees will outlive their savings or that their living standards will be eroded by investment losses or inflation.”
Impact on the annuity industry
In recent years, even some fence-sitters on annuities have given a thumbs-up to the guaranteed income stream capabilities of income annuities. Some have also OK’d certain guaranteed lifetime income riders in deferred annuities. A few even have given grudging acknowledgement to how annuitization options in deferred annuities can create an income stream.
But those messages are spotty and have often been countered by critics who complain that the products have high fees, low disclosure or too much complexity.
In view of that, the industry may welcome the administration’s continuing support for greater use of annuities in retirement plans and IRAs. The words will help raise awareness of annuities, and the fact that the government has taken steps to support availability of annuities in retirement plans and vehicles means the government is walking the talk.
It therefore wouldn’t be surprising to see annuity industry leaders run the administration’s very laudatory comments on annuities up the proverbial flag pole.
Not the first time
As AnnuityNews.com readers will recall, this is not the first time the administration has made favorable remarks about annuities, and followed through with action.
In July 2014, the Department of Treasury issued similar kudos, with the support of the Administration, when issuing new rules creating qualifying longevity annuity contracts (QLACs). These contracts are deeply deferred longevity annuities that, due to the new ruling, people can now purchase inside of their IRAs and defined contribution plans such as 401(k)s, if made available.
Before that ruling, no such annuities were available. Today, at least 11 carriers are selling a version of these specialized annuities, according to LIMRA. Whether the marketplace adopts the products, and whether individuals buy them, remains to be seen. But for now, it seems that the government moves in this area have the potential for helping the industry open up a new market.
The new WHCOA statements in support for annuities, in this week’s report, are significant for another reason as well. This has to do with timing and strategy.
The pro-annuity comments appeared this week despite the fact that many segments of the life insurance and annuity business are trying to quash another government action that touches on annuities. This is the proposed fiduciary rule from the Department of Labor (DOL).
The administration supports this rule, which debuted in April and is expected to see finalization in 2016. Some onlookers have wondered if the administration would downplay its support of annuities due to the industry’s position on the fiduciary rule.
It’s certainly possible that the administration has felt a few twinges over that intense opposition. However, the administration probably stayed the course on annuities because it really does favor annuities that guarantee lifetime income.
If that is so, the statements in the WHCOA report represent an even stronger government endorsement of annuities than previously understood.
Other strokes for annuities
The WHCOA report also mentions some other steps taken by the administration that are also positive for annuities. These include:
- Guidance giving permission to 401(k) plans to automatically enroll employees into qualified default investment alternatives (QDIAs) that use fixed annuities as the fixed income portion of target date funds.
- Guidance allowing plan sponsors to permit employees to roll their 401(k) lump sums into the sponsor’s defined benefit plan — so the employees can purchase a lifetime annuity from that plan.
- DOL guidance issued in July regarding an employer’s fiduciary duty to monitor an insurer’s solvency. Plan sponsors had been “concerned” that they could be held liable if the annuity provider selected for their retirement plan were to fail, the report said. The guidance clarifies that this duty “generally ends when the plan no longer offers the annuity as a distribution option, not when the insurer finishes making all promised payments.”
Retirement security requires more than just accumulating savings, the report said at one point. “People also need protection against outliving assets. Lifetime income options like annuities provide a regular stream of income regardless of lifespan.”
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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