PLANSPONSOR - January - February 2024 - 26

FEATURE
An Evolving Marketplace
Experts say the in-plan annuity market remains relatively nascent,
and they expect the products and solutions to keep evolving as
adoption grows.
" We're still in early stages of getting these solutions onto
recordkeeper platforms and getting live dollars and experience in
an institutional setting, " O'Meara says. " It can be a lot of work for
sponsors to get the solutions rolled out and [explained] properly. "
Maffei likens the post-SECURE Act annuity market to that
of the post-Pension Protection Act target-date fund market. The
PPA cleared the way for sponsors to use TDFs in-plan, and eventually
they became an industrywide standard. But just as participants
had little knowledge of how to use a TDF at first, they are
unaware of the role annuities could play in their retirement.
" If you ask average working Americans what they'll do with
their 401(k) when they retire, the majority will say they need to
roll their money into an individual retirement account and find
a financial adviser, " Holmes says. " A big cultural shift will be
needed to disrupt that mentality. " -Beth Braverman
Types of In-Plan Guaranteed Income
In-Plan Fixed Annuity
HOW IT WORKS
Participants, on retiring, pay an insurance
company for a single-premium immediate
annuity or a deferred income annuity,
which stream income for the rest of the
retiree's life.
ADVANTAGES
+ Easy for participants to understand
+ Provides a predictable return,
making it easy to incorporate into
planning
Guaranteed Lifetime Withdrawal Benefit
HOW IT WORKS
ADVANTAGES
A hybrid approach typically built into
target-date funds. A portion of the
participant's bond investments go into an
annuity that allows the retiree to withdraw
a certain amount each year for life.
+ Participants are already often
comfortable with/enrolled in a
target-date fund
+ This is the most flexible approach,
as participants may make
withdrawals or choose not to turn
on the income option
In-Plan Index Annuity (Guaranteed Variable Annuity)
HOW IT WORKS
ADVANTAGES
Insurer guarantees a minimum payout,
but the amount varies depending on the
performance of a pre-chosen index. Value
of annuity can go up, depending on the
performance of the index. At retirement,
participants may turn on the income option
to begin drawing down their funds.
Annuity Window
HOW IT WORKS
Providers offer a " window, " similar to a
brokerage window, through which plan
participants may select an out-of-plan
SPIA or DIA from a menu of choices.
+ Participants may purchase them
via installments over time
+ Potential to earn a higher return
than with a fixed annuity, if
markets perform well
DISADVANTAGES
- Typically may not be funded via
installments
- If offered without a cost-of-living
adjustment, may carry inflation risk
FEE STRUCTURE
Fees
embedded
in purchase
rates
DISADVANTAGES
FEE STRUCTURE
- No principal guarantee
- Typically provide less lifetime
income than straight annuities
Investment
and insurance
fees,
expressed as
a percentage
of the
account
value
DISADVANTAGE
FEE STRUCTURE
- Participants pay a premium for
guaranteed income with potential
for growth
- Can be more difficult to compare
products
Fees for the
underlying
investment
and annuities
are generally
explicit
ADVANTAGES
DISADVANTAGE
+ Requires fewer design changes,
from a plan sponsor perspective
+ Can provide more choices for
plan participants via a material
recordkeeping link
- Assets leave the plan
- Participants might select an
inappropriate option
FEE STRUCTURE
Fees are
embedded in
the purchase
rate
26 PLANSPONSOR.COM January - February 2024
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PLANSPONSOR - January - February 2024

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