Conning: Growing demand for in-plan annuities creates opportunity for insurers

A significant trend in the U.S. retirement system over the past four decades is that private sector employees have become less likely to be covered by defined benefit (DB) pension plans and more likely to be covered by defined contribution (DC) plans.

The recent volatility of the stock market coupled with the aging Baby Boomer population nearing retirement has given rise to participant demands for guaranteed income in retirement which has opened up the door for in-plan annuities as an investment option for DC plans.

Conning's 2023 Focus Series: "The Annuity 401(k) Opportunity: A door Opens Wider" is the first of a series of focus studies on this topic by Conning Insurance Research's retirement industry experts.

"In traditional DB plans, employees receive a steady retirement income that is paid for the life of the retiree. However, in 401(k) plans, employees contribute a portion of their own income to a tax deferred savings plan which is subject to the gyrations of the stock markets and carries no guarantees of either investment returns, or a guaranteed retirement income," said Manu Mazumdar, a VP of Insurance Research at Conning.

One option that is gaining in popularity is annuities as an investment choice within an employee's DC plan. "Annuity insurers have been competing in the $6 trillion 401(k) market for several decades. However, that competition was limited to providing recordkeeping services or investment options. The passage of the SECURE Acts in 2020 and 2022 has increased the opportunity for annuity insurers to expand their role and capture significant growth," said Scott Hawkins, the Head of Insurance Research at Conning.

This focus report reviews the wider 401(k) opportunity now available to annuity insurers. It identifies what is driving the annuity industry's interest in the 401(k) market. It examines how in-plan annuities help solve plan members' key retirement challenges. Finally, it looks at the multi-generational nature of the wider 401(k) opportunity. Future reports will look more closely at product development and potential constraints facing the annuity industry as it goes after the 401(k) opportunity. "2023 Focus Series: The Annuity 401(k) Opportunity: A door Opens Wider " is available for purchase from Conning by calling (888) 707-1177 or by visiting https://go.conning.com/2023-Focus-Series-The-Annuity-401K-Opportunity.html.

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Conning (www.conning.com) is a leading investment management firm with a long history of serving the insurance industry. Conning supports institutional investors, including insurers and pension plans, with investment solutions, risk modeling software, and industry research. Founded in 1912, Conning has investment centers in Asia, Europe and North America.