In-plan annuities still suffer from Ken Fisher-led reputational attacks

NASHVILLE – Reputation might be all that is holding back annuities from taking up a steady residence inside retirement plans.

Not surprisingly, it is evident that decades of trashing annuities as overpriced and ill-advised will take time to reverse, agreed a panel at the LIMRA 2024 Annual Conference.

"We literally have people say, 'I don’t know much about finance but I know not to buy an annuity,'" said Nick Nefouse, global head of Retirement Solutions and head of LifePath for BlackRock.

That's why BlackRock developed LifePath Paycheck, he added, and is partnering with Equitable and Brighthouse Financial. The product offers “guaranteed income” via a target date fund.

When a participant enters retirement, they will receive a guaranteed amount of funds in a paycheck-like manner that is meant to provide a stable source of income. By providing access to guaranteed income through a target date fund, LifePath Paycheck is meant to be more stable than a standard 401(k).

Nefouse was part of a panel titled, "On Your Marks: The Intensifying Retirement Income Race and the Uptick in In-Plan Annuit."

While half of retirees enjoy guaranteed lifetime retirement income from a pension, just 15% of current private-sector workers have access to a defined benefit, or pension, plan. As a result, the industry has teamed up with Congress to push in-plan annuity strategies to give retirees guaranteed lifetime income options.

According to a LIMRA study from earlier this year, more than 4 in 10 plan sponsors say they are either actively considering or have decided to add an in-plan annuity within their retirement savings plan.

Interest is strong among workers as well. LIMRA asked Americans between the ages of 40 and 80 with at least $100,000 in investable assets how likely they would be to invest in guaranteed income within their retirement plan. Nearly 7 in 10 non-retired workers say they would be “very” or “somewhat” likely to select an in-plan annuity option if it were available.

'The biggest barrier'

Respondents between the ages of 40 and 49 are especially interested in this option. However, old reputational concerns about annuities are a hard hurdle to clear, Nefouse said. The advisor world has long disdained annuities, with Ken Fisher building an entire "I Hate Annuities" marketing campaign around those attitudes.

"The biggest barrier I can tell you is the word 'annuity,'" he said, suggesting that the industry switch to the euphemistic "lifetime insurance" instead.

Timothy Pitney, head of lifetime income default distribution at TIAA, only partially agreed with a name change.

"We have to call them what they are, but we have to call them 'institutional annuities,'" he said. "These are not retail annuities. ... There's a lot of misconceptions about annuities that we need to clear up. And those audiences need to be receptive."

TIAA has more experience than most companies when it comes to incorporating annuities in plans. The company offers several products that combine target-date funds and annuities, for example.

Total U.S. annuity sales reached a record-high $385.4 billion in 2023, LIMRA reported. Fifty-six percent of those annuities were bought with money coming out of qualified plans, Pitney noted. Adding the annuity inside the retirement plan is a much more economical option, he added.

Freedom to spend

One of the big problems with the traditional 4% rule for spending down retirement funds in retirement is it paralyzes many seniors. Mark Caner, president of W&S Financial Group Distributors, noted a study of seniors aged 65-80 found that they still had on average 80% of their funds remaining in their 401(k) accounts.

Having an annuity inside a retirement plan frees up seniors to enjoy the money they have left, said John Faustino, head of retirement products for Broadridge Financial Solutions. Faustino moderated the session.

"A lot of discussions I have with financial advisors are around them encouraging retirees," Faustino said. "They’re afraid to let that money go.”

Many of the provisions of the SECURE Act of 2019 and its successor, SECURE 2.0, passed in 2023, are taking effect on staggered timelines and are removing the barriers to annuity sales in retirement plans.

SECURE became the catalyst for much of the adoption of annuities by retirement sponsors, because the act provided a safe harbor for the plan sponsor in how they provide due diligence in selecting an insurer and monitoring that insurer on an ongoing basis.

"The government has done its job," Pitney said. "We can solve this problem tomorrow” if consumers realize the benefits.

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