Panel Sees Potential For Annuity Boom Aided By SECURE Act

The SECURE Act created ample opportunities for annuity products to thrive inside retirement plans. Now it's up to retirement plan sponsors, distributers and producers to get on the same page.

A group of industry experts debated how to make that happen during the Wednesday LIMRA session, "New Frontiers In In-Plan Guaranteed Solutions," at the Retirement Industry Conference.

"We're seeing a lot more momentum with those [financial professionals] and their firms being more comfortable with them playing a role introducing, supporting and in some cases, even selecting with discretion in-plan guaranteed income options," said Jason Roberts, lawyer with Retirement Law Group.

Officially known as Setting Every Community Up for Retirement Enhancement, the bill was signed by President Donald Trump at the end of 2019. It tweaked and relaxed a host of tax and regulatory guidelines, all aimed to make it easier for Americans to save for retirement.

While companies already can offer annuities in their 401(k) lineups, just 9% do, according to the Plan Sponsor Council of America. The SECURE Act aims to boost that figure, and improve retirement readiness, by eliminating companies’ fear of legal liability if the annuity provider fails or otherwise fails to deliver.

Overcoming Liability Fears

The act creates a safe harbor that employers can use when choosing a group annuity to include as an investment within a defined-contribution plan, with new provider-selection rules.

For instance, the legislation will protect employers from liability if they select an annuity provider that, among other requirements, for the preceding seven years has:

• Been licensed by the state insurance commissioner to offer guaranteed retirement income contracts.
• Filed audited financial statements in accordance with state laws.
• Maintained reserves that satisfy all the statutory requirements of all states where the annuity provider does business.

Helping plan sponsors feel more comfortable offering annuities is a big key to growing the market and getting guaranteed income options to people who most need them, said Justin Dorsey, principal with Advanced Capital Group.

"I think the big barrier is this fiduciary responsibility," he said. "For me, as long as I've been doing this, that's certainly been the biggest obstacle to overcome."

Plan sponsors are already exposed to liability, according to existing regulations, he added. So the SECURE Act safe harbor offers a path to "insulate" them from liability while offering more annuitization options to employees, Dorsey explained.

"For me, that's a big door opener for this conversation with retirement plan sponsors," he said. "Most of you are already exposed to this fiduciary liability, so why not take advantage of the safe harbors that are available to you?"

Written Reports

Another provision of the SECURE Act requires plan sponsors to provide a statement, at least once during a 12-month period, that sets forth the “lifetime income stream equivalent” of the participant’s account balance.

While seemingly a simple change, showing consumers the annuitized results could be huge for retirement readiness, Roberts said.

"Giving the participants that solution when they're getting that news potentially for the first time, and they really see that sometimes it doesn't go as far as they thought it might, having something that they can immediately turn their attention to and start saving more, and do it in a guaranteed way, it's a nice companion to keep that momentum," he added.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

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