Fees, Portability and Fiduciary Risk Continue to Present Hurdles for In-Plan Annuity Market

"In-Plan" annuities refer to the use of annuities within defined contribution pension programs such as 401k plans.

The concept is relatively new, but the timing should be a perfect the concept to gain traction:

  • The financial crisis has devastated the portfolios of many retirees and near-retirees.
  • Millions of baby boomers will add to the 70 million or so U.S. residents over the age of 55.
  • People are starving for stable, guaranteed sources of income in light of market volatility and increasing longevity risk.

However, as indicated earlier, the promising concept has been plagued by nettlesome details:

“Adding income solutions to DC plans makes perfect sense, but the details are the biggest challenge,” said Sue Walton, senior investment consultant at Watson Wyatt Worldwide in Chicago. “What are the fees? How do you solve the portability issue? Are we comfortable as fiduciaries signing off on long-term guarantees with one insurer? It's the topic de jour right now, but the industry needs to answer some of these questions before it will go anywhere.”

Source: Pension & Investments

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Similar to an employer-sponsored health plan, the in-plan annuity is contractually issued to / owned by the employer or plan sponsor.

When the participant / employee leaves the employer (retirement or change in jobs), they need to have the ability to "port" or bring the annuity with them.

Hope this helps.