PLANSPONSOR - December/January 2020 - 10

UPFRONT
Use of Annuities Is SECURE'd
NOW that
the
SECURE
[Setting
Every Community Up for Retirement
Enhancement] Act legislation has passed,
it will provide additional safe harbor clarification
to sponsors. And, experts say, more
sponsors will be apt to warm to the idea of
offering annuities and guaranteed income
choices to participants.
" The greatest innovations in annuities
are taking place among fixed annuities,
and developing regulations to catch
up to this innovation so they can be default
investments will be the next frontier in
retirement plans, " says Doug McIntosh,
vice president of investments at Prudential
Retirement. " If we want to move the needle
for deserving American workers, we have
to offer fixed annuities as the default, and
we know the strongest force in defined
contribution [DC] plans is participant
inertia. This is something to keep an eye
on from both a product and regulatory
perspective. "
" Any product that can help provide a
reliable stream of income would be valuable, "
agrees Dana Hildebrandt, director
of investments at Willis Towers Watson.
" But an important part of annuities
being offered is adoption. Plan sponsors
have more options today than they did 18
months ago. The key is getting participants
educated about these options. "
Paul Richman, chief government
and political affairs officer at the Insured
Retirement Institute (IRI), is optimistic
that the legislation will be a game changer
when it comes to sponsors' confidence in
offering annuities in their plan. While the
Department of Labor (DOL) has provided
a safe harbor to sponsors to offer annuities,
it " still includes liabilities in terms
of requiring sponsors to look at the financial
capability of the provider of guaranteed
income at the time of selection, as
well as the cost, " Richman says. " The
problem is that employers, particularly
small employers, don't have that expertise.
The bill provides clarification to say that
sponsors can rely on the judgment of state
insurance regulators, which are consistently
auditing, examining and regulating
the insurers, and one of the key things they
10 PLANSPONSOR.COM December 2019 - January 2020 Art by Isabella Fassler
are looking for is their financial strength. "
Richman says the SECURE Act will
make a " significant difference because it
will reduce [plan sponsors'] current liabilities,
which are tremendous. Annuities
are the only solutions that protect people
from outliving their savings. We think
that providing this clarification will reduce
sponsors' reluctance to consider annuities
for their plan menus. "
In fact, sponsors are already showing
interest in annuities, Hildebrandt says.
Willis Towers Watson surveyed plan sponsors
about lifetime income offerings in
September and found an increased interest
in lifetime income solutions, including
balanced funds tied to an annuity, she says.
" The interesting and exciting part about
this for us is there are so many more products
on the market today that incorporate
an income component for a qualified plan, "
Hildebrandt says. " The peer universe is
getting much larger, making it more palatable
for sponsors to offer annuities, and
anything that helps participants create a
stream of income is a win. " -Lee Barney
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PLANSPONSOR - December/January 2020

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