Many investment strategists believe in using annuities for retirement savings held outside 401(k) plans.
Phil Maffei II, the managing director at TIAA's corporate retirement solutions unit, disagrees.
Putting some retirement plan assets in deferred fixed annuities "can benefit participants at all stages of their lives," Maffei said in a recent email interview.
The insurer that backs the annuity can protect a participant's principal, guarantee asset growth, stabilize portfolio returns, and provide a lifetime income option — and those benefits are worth the cost, Maffei added.
What It Means
Ordinary retail annuities are hot, and insurers are busy persuading 401(k) plan sponsors to add in-plan annuitization options, to help participants who retire pull out retirement income.
Soon, marketers may focus more on the idea that in-plan annuities can also be helpful for plan participants who are still accumulating retirement assets.
The History
Some of the first modern defined contribution retirement plans in the U.S., or 403(b) plans, had annuities at their heart. Many universities, K-12 schools and other nonprofit employers still offer annuity-based 403(b) plans.
Today, most for-profit employers with 401(k) plans use bare mutual funds on the investment menus, not annuities, because of a belief that annuity owners pay extra for account management machinery and tax advantages that are built into the 401(k) plan framework.
In 2019, Congress supported the increased use of annuities as 401(k) plan retirement income spigots by passing the Setting Every Community Up for Retirement Enhancement Act, or Secure Act. One provision reduces the risk that employers could get sued for picking a poorly performing annuitization option provider.
Deferred Fixed Annuities
A deferred fixed annuity (DFA) provides a minimum guaranteed rate of interest. Features tied to the performance of investment indexes or other features can increase the actual crediting rate paid above the minimum rate promised.
