But she cautions that an in-plan annuity “can be difficult for participants to understand and difficult to explain.”
Proposed Legislation
To ease some of the confusion, the federal government has floated proposals to standardize reporting procedures and help employees compare annuity options, among other provisions. “Smoothing the way for annuities to be considered as distribution options from defined contribution plans—not necessarily recommendations—could be seen as leveling the playing field a bit, giving some retirees a needed safety net,” says Dupont.
Dolan at the ACLI says his organization supports a measure called the Retirement Enhancement and Savings Act (RESA). “RESA will mitigate current employer regulatory roadblocks,” Dolan explains. “[It] will help participants better understand their retirement savings by providing an illustration of how their savings account balance translates into monthly lifetime income in retirement.”
Concern about fiduciary liability is at the center of much of the legislative debate. Future legislation, it’s hoped, will define a “safe harbor” for plan sponsors—that is, it should provide detailed standards for how they should assess different annuity providers to meet their fiduciary obligations.
Some hope legislation will go even further. “It is imperative that legislative and regulatory initiatives ensure that any evaluation of a saver’s preparedness for retirement includes an assessment of their guaranteed income needs,” says Jamie Ohl, an executive vice president and president of retirement plan services at the Radnor, Pa.-based Lincoln Financial Group. Such consideration, Ohl points out, is in keeping with clients’ best interests.
It’s crucial, though, not to overreach. Doug McIntosh, vice president of investments at Prudential Retirement in Hartford, Conn., stresses that annuities already undergo a rigorous approval process by state regulators. Federal regulators shouldn’t be “second-guessing state insurance departments regarding the viability or suitability of insurers or particular annuity products,” he says.
Not For Everyone
Make no mistake: Annuities aren’t universally popular.
Tony D’Amico, CEO and senior wealth advisor at Fidato Wealth in Middleburg Heights, Ohio, contends that annuities are “oversold completely. The biggest drawback with annuities as part of a 401(k) is that there are participants of many different ages—from just entering into the workforce to those nearing retirement.”