Congress is considering two bills that would make it easier for plan sponsors to include annuities in their 401(k) plans, according to a Cerulli Associates report.
Only 8% of plan sponsors offer in-plan annuity purchase options, and only 2% assist their participants in purchasing annuities outside of their retirement plans, according to a Cerulli report released today.
One of the main hurdles for plan sponsors in providing such options has been their fears about their potential liability if participants suffer annuity losses, according to the report.
"The lack of clear legal and regulatory guidance on safely incorporating annuities into a 401(k) plan, either as an investment option during the accumulation phase or as an option to help retiring employees fund their retirement fosters this situation," the report said.
But the two congressional bills under consideration could change that: the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which has been passed by the House of Representatives, and the Retirement Enhancement and Savings Act (RESA), which is under consideration by the Senate.
"If either bill is signed into law, or if a compromise combining elements of the two is reached, the resulting changes will reduce the risks to 401(k) plan sponsors that offer annuities through their plans," the report said.
Cerulli said the bills contain the following key provisions:
• They provide a safe harbor that allows plan sponsors to avoid liability for losses participants or beneficiaries may suffer if an insurer can't meet its obligations throughout the term of the annuity contract.
• Participants would be allowed to roll over annuity investments to another qualified retirement plan or an individual retirement account, negating the fees and red tape involved in liquidating an annuity when changing jobs or in other situations where assets are moved out of an employer-sponsored retirement plan.
• Plan sponsors would be required to provide statements at least once a year showing how much monthly income participants could generate by using their assets to purchase an annuity.