ment,” Dial notes. “Annuities are part of the answer, and
being able to offer advice about how to pick the right option
will be crucial because choosing a decumulation strategy is
much harder” than selecting an investment.
Yet, to date, DC plan sponsors have been reluctant to offer
annuities in their plans, primarily because they fear fiduciary
liability, sources say. However, a regulation issued by the
Department of Labor (DOL) in 2008 regarding the selection
and monitoring of annuity providers and annuity contracts
under DC plans provides plan fiduciaries with safe harbor
conditions. In addition, in Field Assistance Bulletin (FAB)
2015-02, the DOL answered questions it had received about
the annuity selection safe harbor regulation for DC plans.
Brown says most plan sponsors believe the safe harbor
needs to be strengthened, but insurance carriers have
strict state regulations, and part of the DOL’s guidance is to
allow plan sponsors to rely on state audits and regulations
for appropriateness and strength of carriers. Plan sponsors
had thought they needed to be certain the annuity provider
would be around in 30 years to make good on the annuity
payments, but the new bulletin says a sponsor need only
determine whether the provider is financially viable at the
time of the selection.
Brown suggests it would be helpful for advisers to educate
plan sponsors about the risks participants face when it
comes to retirement income. He points out that, according
to the Society of Actuaries, 65% of Americans now age 65
will live to 85, and 25% will live to 95, with some surpassing
100. According to MetLife’s Paycheck or Pot of Gold Study,
one in five retirement plan participants who selected a lump
sum from either a DB or DC plan (21%) have since depleted
it. Those who depleted their lump sums ran through their
money in, on average, 5. 5 years.
“Think about the popularity of TDFs,” Brown says. “Many
participants view them as set-it-and-forget-it investments.
When they shift into retirement, one thing an annuity can
provide is a set-it-and-forget-it type of draw-down strategy.”
The potential for a participant’s cognitive decline is another
reason for a set-it-and-forget-it strategy, he adds.
Annuities are often framed inappropriately as investments, according to Brown, but they are insurance. “People
don’t look at their auto or homeowner’s insurance and say,
‘Well I should get a return on my premium.’ The return is
protection. Advisers using the term ‘protection’ will help plan
sponsors and participants take the right actions,” he says.
Best Options Available
Sri Reddy, senior vice president and head of full service
investments at Prudential Retirement in Hartford, Connecticut, says if plan advisers want to become knowledgeable
about annuity and other lifetime income options, the Insured
Retirement Institute (IRI) is a useful resource. Advisers can
also do research online, attend conferences and rely on
product providers, as those offer a plethora of information on
their own and comparative products.
Some lifetime income products include:
• Immediate fixed-income annuities, which start pay-
ments upon a participant’s retirement;
• QLACS, which are income annuities that start on or
before age 85 to protect against running out of money if a
participant lives longer than he expected;
• Guaranteed lifetime minimum benefits (GLMBs), which,
Reddy says, combine an annuity structure with potential
market upside and more control for participants;
• Managed payout funds and managed account products,
which offer income payments, but are not guaranteed as
According to MetLife information, options also include
guaranteed lifetime withdrawal benefits (GLWBs). MetLife
explains that guaranteed minimum withdrawal benefits
(GMWBs) and GLWBs provide income flexibility and guarantees at an additional expense. Further, plan sponsors may
offer a systematic withdrawal plan (SWiP) as a distribution
option for participants; this option provides full flexibility but
no guarantees—thereby exposing retirees to market volatility and longevity risk.
Whether the annuity is in-plan or out-of-plan is up for
debate, as both have strengths and potential drawbacks plan
sponsors should consider.
Brown says Metlife likes the simplicity of fixed-income
annuities within DC plans, and supplies education about
various such annuities—“over one person’s life or two
people’s lives”—on its website. He adds that, for protection, when participants hit their life expectancy, MetLife
The presence of an in-plan solution can especially help
participants combat risk-aversion, Reddy points out. “If they
have an in-plan solution, they can focus on the long term
rather than the cyclical market,” he says.
According to Dial, from an execution standpoint, out-of-plan annuity options, whether immediate or deferred, make
the most sense. For example, Hueler’s Income Solutions platform allows participants permitted to take early, in-service
distributions to purchase annuities with part of their DC
account balance. They may do so starting at age 65 or, with
the QLAC option, starting at 85. Choices include a variety of
institutionally priced options, he says.
An issue with in-plan annuities is portability, he notes.
When the plan sponsor changes recordkeepers, the new
provider would need to track substantial employee indicative
information that recordkeepers do not typically keep. And,
because annuities may provide different guarantees, they
can be held in omnibus accounts, with performance based on
the purchase date—this is more information recordkeepers
would need to keep.
Still, he likes the concept if recordkeepers take up the
challenge and the currently high prices become institutionalized. If the prices are right, making in-plan annuities available to participants about 10 years prior to retirement is a
good idea, he says.
Reddy agrees. For the vast majority of Americans who
save in a workplace plan, waiting until they retire to access a
retirement income solution may be too late, he warns. “The
10 years subsequent to retirement determines the overall