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Life Health > Annuities

How In-Plan Annuity Sales Could Help Retail Advisors

By Allison Bell

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What You Need to Know

  • Sponsors for 403(b) plans have offered in-plan annuity options for years.
  • Sponsors of 401(k) plans will warm up to them after a few years, Deana Calvelli says.
  • One obstacle she sees is a branding problem.

The push to add annuitization options to 401(k) plans could nurture an important set of prospects: the plan sponsors’ owners and top executives.

Building the in-plan annuity market at 401(k) plans will take years, according to Deana Calvelli, a vice president for wealth and retirement at NFP, which is now part of Aon.

The process will start with “education to help plan sponsors understand how lifetime income solutions can be viewed as another asset class, i.e., fixed income with a guarantee,” Calvelli said in an email interview.

What it means: Plan sponsors, annuity issuers and financial professionals need to educate the participants about the idea of converting some or all of their plan assets into a stream of lifetime income.

And, in many cases, they also have to educate the boss about that idea.

Even if the participants don’t have enough assets to meet an advisor’s minimum, the boss might.

The backdrop: Schools, municipal agencies and other nonprofit employers with annuity-based 403(b) plans have been offering in-plan annuitization options for many years.

Some asset managers have been offering similar options aimed at for-profit employers’ 401(k) plans for about a decade.

Now, provisions in the Secure Act and Secure 2.0 have made offering in-plan annuities more practical, and companies like BlackRock have started to offer programs that give the participants a chance to choose from a menu featuring two or more annuity issuers.

Executives from BlackRock, for example, are predicting that use of combinations of target-date funds with in-plan annuitization options will soon be the most popular 401(k) plan participant path.

But they indicated that initial sales have been slower than they had hoped.

Expert’s perspective: Calvelli recently joined NFP after working for companies like Buck, Lockton and Creative Planning.

Nonprofit employers with 403(b) plans “have effectively adopted lifetime income products for years,” Calvelli said.

Meanwhile, at employers with 401(k) plans, “for quite some time, we’ve seen a reluctance to adopt in-plan annuities,” she said. “They are more complicated and can have more moving parts than typical investments or distribution options. Annuities have, in part, a branding problem, and most plan sponsors don’t want to be the first to dive into the pool.”

But Calvelli believes that in-plan annuity sales will grow over time.

NFP is tracking 13 in-plan annuity options, including nine that combine in-plan annuities with a target-date fund.

“We are trying to pivot the conversation around annuities toward the concept of solving for the risks in an individual’s holistic financial plan,” she said.

The best guides for both the sponsors and the employees will be retirement advisors with a thorough understanding of lifetime income planning, she predicted.

“Our advisors are first and foremost focused on helping individuals create a personalized financial plan,” Calvelli said. “We look at guaranteed income as a component of fixed income within a well-diversified portfolio.”

She sees putting assets in an annuitization option as a way to create the equivalent of a personalized pension.

“Making in-plan annuities more accessible to individuals through their workplace retirement plans is another way to democratize investing for all,” she said.

Credit: Adobe Stock

Allison Bell

Think_Allison

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