In-plan annuities becoming more portable

Questions about the portability of in-plan guaranteed income products have dissuaded some sponsors from offering annuities in 401(k) investment menus, even as regulators and retirement advocates continue to lobby for wider adoption in workplace plans.

A new issue brief from Institutional Retirement Income Council, a nonprofit think tank with members that include some of the largest retirement plan providers, suggests sponsors' portability concerns are based in old perceptions.

"We now operate in a more mature income product market where recordkeepers handle basic processing for guaranteed lifetime income products within existing processes like trading, enrollment, contributions, exchanges, and display of account value," according to language in In-Plan Guaranteed Lifetime Income: Debunking Portability Myths.

Translation: Recordkeepers can handle annuities when sponsors choose to change providers or participants roll plan assets in IRAs, according to the brief.

"The fact is portability is no longer a barrier," said Michael Westhoven, co-author of the brief and the business development leader in DST Retirement Solutions' annuity arm.

Many sponsors have apparently yet to get the memo.

"Solutions and options are widely available today although they may not be well recognized," added Westhoven in a statement. "Much has changed over the past decade, with product designs, industry standards and new technology all working together to help plans and participants keep their guaranteed benefits."

That said, the brief suggests questions of portability may not be completely without merit, as it recommends sponsors weigh portability when choosing an annuity provider and a recordkeeper.

For recordkeepers, accommodating non-proprietary annuities requires investments in thought, strategy and time, the brief said.

"Not all recordkeepers have yet made that investment," the brief said.

Growing demand for annuity products and wider in-plan adoption — more than 33,500 plans now offer annuity products — are driving change, and motivating all recordkeepers to consider the level of portability they intend to accommodate.

The question of annuitizing savings comes as new data suggests more sponsors may be encouraging participants to leave assets in plan at retirement, as opposed to rolling assets over.

In offering annuities through 401(k) plans, participants can experience far more favorable pricing than they would in the retail market, the brief notes.

The necessity of portability is also underscored by the itinerant modern worker, who will change jobs 11.7 times throughout their career, on average.

A copy of the brief can be accessed here.

Have you Liked us on Facebook?