The SECURE Act will inspire a new batch of annuities and opportunities, but they might not show up until next year, according to insurance professionals.
The Setting Every Community Up for Retirement Act is being called the most significant pension reform in a decade, but it will require education while also spurring product innovation.
The law not only makes it comfortable for sponsors to fortify 401(k)s with annuities but also adds favorable portability rules to make it easier to roll them out to other retirement plans or IRAs.
“For those that work with or start working with 401(k) plans, there could be a huge boom in annuity sales starting, likely in 2021,” said Jamie Hopkins, director of retirement research for Carson Wealth.
“The reason you won’t likely see a huge boost in 2020 is because plans still have to add annuities and do a review in order to get them into the plan as an investment option,” said Hopkins, also an associate professor of taxation at The American College of Financial Services and director of the New York Life Center for Retirement Income.
Large-scale annuity inclusion in plans won’t come immediately after the enactment of the expanded safe harbor for a related reason — there are three constituencies that need to be educated, according to Sri Reddy, Principal Financial Group’s senior vice president in retirement and income solutions.
First, advisors need to learn about SECURE’s nuances and how to be experts in this arena, Reddy said.
Second, recordkeepers need to learn about how annuities are different from mutual funds with age restrictions and contribution differences, and they also need to build technology to support annuity offerings and their proliferation.
The third group that needs to be educated, he said, are the plan sponsors.
“Once we get all three of those, which will take a little while, then we educate consumers and participants,” he said. Principal, with Reddy on board, is hosting a webinar, open to all on Feb. 6, on the Act and its impacts, opportunities and necessary tools.
Education Comes First
Paul Richman, chief government and political affairs officer for the Insured Retirement Institute, echoed the need of the education process for advisers and plan sponsors.
“It is a process,” Richman said, underscoring the potential for innovation as the opportunities in the new law are unlocked.
All those involved in the process are reviewing this now, perhaps looking into target date funds and new annuity products designed to meet the needs of plan participants as all the market participants share information and look at clients’ needs, he said. However, this adoption process “is not going to happen in six months, eight months, one year, two years,” Richman said.
Frank O’Connor, IRI’s vice president of research, said nsurance companies and asset management companies are looking now at how marketing needs to change and educating advisers.
O’Connor said to expect this to slowly gather steam throughout the year. The IRI research executive added that the “positive feedback loops” should encourage more participation in annuity selection.
Carson Wealth’s Hopkins agreed, saying the process “could take years, and then it will take time for participants in these plans to start using the products.”
The professor said he likes the forecast for more annuities in retirement plans but added a strong cautionary note on compliance issues ahead.
“I like the notion that there will be more annuities in retirement plans,” Hopkins said, “but considering the lack of financial literacy and understanding of annuities coupled with the lack of investment advice 401(k) participants receive, I worry about a lot of unsuitable investments into annuities occurring.”
Elizabeth Festa, based in Washington, D.C., has been reporting on insurance and finance for more than 15 years. She may be contacted at [email protected]
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