The future of defined-contribution plans includes annuities — but that future is still a way off, guests at the recent RPA Convergence Broker-Dealer Roundtable and Thinktank said.
Presently, very few 401(k) plans use annuities, particularly as part of the default investment option. Provisions in the SECURE Act bode well for the future of insurance products in DC plans, such as a rule being implemented next year by the Department of Labor requiring annual statements of 401(k)s to include retirement income estimates. The legislation also clarified fiduciary liability protections for plan sponsors in their selection of products and providers.
But selling plan sponsors on anything new is a challenge, and annuities are complex products. And a bigger issue in the short term is adding guaranteed income options at a time when guarantees are not stellar, attendees at the Nov. 30 – Dec. 1 RPA event noted.
“The low interest rate environment makes it very difficult to feel compelled to invest in guarantees, particularly if you’ve got the capital requirements to go along with that,” said Gary Tankersley, head of sales and distribution for John Hancock’s U.S. retirement plan business. “That low interest rate environment is going to prevent people from putting the word ‘guarantee’ on anything.”
Broker-dealers are paying more attention to retirement income, but that effort is focused more on the wealth management side of the business than on workplace savings plans, guests said.
Annuities are part of the overall strategy to address retirement income, but there are other products, besides 401(k)s, that also need to be considered.
“It’s more than just the traditional annuity,” said Laura Kirkover, head of retirement and investment product consulting at Wells Fargo Advisors. The question is, “Is it a product that works, or is it pulling together resources from a lot of different products, [such as annuities, life insurance and investments]?” Kirkover said.
More than 90% of target-date fund providers said they see income products being incorporated into those investments in the near future, according to a recent report from Cerulli Associates. That includes annuities and managed payout funds, but there are other strategies, such as a transition from the target-date fund to a managed-account service, such as Empower Retirement’s Dynamic Retirement Manager service.
Retirement income is becoming more of a focus for Edward Jones, especially given changing age demographics in the country and among its clients, said John Davis, principal of retirement products at the firm. Helping the firm’s 20,000 advisers “with a consistent, scalable process, to make sure they are meeting all of those client needs in the most tax-efficient manner … is important,” Davis said.
“The goal isn’t retirement. It’s what you want to accomplish in retirement,” he said. “Understanding the income relative to the expense that is needed to achieve those goals is a focus.”
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