Current Annuities Boom Still Likely Faint for DC-Plan Advisers

Annuity sales are on a tear in 2022, drawing interest, but potentially limited implementation from defined contribution retirement plan advisers and sponsors.



A boom in annuities driven in part by locking in stronger returns may be creating more interest from defined contribution plan advisers and sponsors, but is not necessarily translating to actual in-retirement plan uptake, according to new research and the DC plan head of a retirement plan advisory.

The higher interest rate environment, coupled with a search for safety, has fixed and indexed annuity sales booming among financial advisers and clients, researcher and consultancy Cerulli Associates said in research released Thursday.

There is not currently good data on the sales of in-plan annuities, which in theory provide a pension-like income for retirees within a 401(k) or other retirement vehicle, Cerulli’s Donnie Ethier, head of the firm’s wealth management practice, said in an emailed response. Anecdotal evidence shows the retail annuity boom is at least creating interest for retirement plans, he said.

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“When we speak to advisers, some express interest, but many admit to not having made the recommendation or implementation,” Ethier said. “In the end, interest is growing, and I believe insurers are doing a relatively good job spreading the word and perfecting the positioning. Time will tell if adoption remains limited or gains greater acceptance.”

Annuity sales have been consistently breaking records this year as fixed-rate deferred and fixed indexed annuities provide both protection and strong returns due to higher interest rates, according to insurance association LIMRA. The trend has many reconsidering what some see as the future of retirement income, but others as a potentially complex and pricier way of locking in a guaranteed paycheck.

In practice, plan sponsors and advisers have been more aware of in-plan annuities after the regulatory environment became more permissive with the Setting Every Community Up for Retirement Enhancement Act of 2019, says Jennifer Doss, senior director and defined contribution (DC) practice leader at CAPTRUST Financial Advisors. That does not mean, however, that plan sponsors are asking for them specifically or implementing them once they hear about the offering.

“I wouldn’t call it high interest,” Doss says. “It’s higher than it was before, but I wouldn’t consider it a popular topic or something that we’re inundated with.”

Doss says their teams generally discuss in-plan annuities as part of a broader conversation about how to solve for retirement income options for participants. When they are discussed more seriously, it’s generally among larger retirement plans of $50 million in assets or more, Doss says.

“We go through a consulting process that is based on their needs, and ultimately a lot of times it lands with different options to solve for [retirement income] through different vehicles and solutions,” Doss says.

Options can include adding a managed account, providing financial advice options for participants or reviewing their target-date fund option to make sure it is right for people staying in the plan longer, she says.

In research put out in October, Cerulli addressed the disconnect between insurers selling annuities and plan advisers, noting “little overlap” between those who distribute annuities and those who service DC plans. The research showed that 48% of retirement plan advisers see “at least some value” in the in-plan annuity concept, while 31% saw “no benefit” and another 21% remained unsure.

Employee surveys about in-plan annuities does show that half would prefer a retirement plan mix of investment and income options like annuities, rather than traditional pensions or investments alone, according to a study from the Alliance for Lifetime Income’s Retirement Income Institute.

Ethier notes in his research that, while the current environment is creating demand, annuity providers should be cognizant of not engaging in a “rate war,” as over time the markets will stabilize.

“This means, despite renewed interest in the solutions and increasing sales, the challenges that insurers were facing prior to 2022 will persist,” he said.

Cerulli projects total annuity sales of more than $200 billion for each of the next five years, similar to sales achieved in 2021, the research said. Growth will be led by registered index-linked annuities, or RILAs, which are linked to a stock market index to provide chance for growth, but a cap on the downside making it potentially less volatile than a variable annuity. Boston-based Cerulli projects fixed annuities to be flat to down.

Doss, of Raleigh, North Carolina-based CAPTRUST, notes there are also many different types of in-plan annuity options, including through a Qualified Default Investment Alternative, a managed account or a TDF.

“We often forget that even within the in-plan annuity, there are many different ways to implement, depending on need,” she says.

DOL Hosts Public Hearing on QPAM Proposal

The commentators and DOL representatives had stark disagreements on the implications of some the proposal’s provisions.


The Employee Benefits Security Administration hosted a public hearing Thursday to receive comments on its proposal to amend the qualified professional asset manager exemption.

A QPAM is an institution that handles transactions on behalf of a retirement plan with parties in interest, which would be barred if the retirement plan processed the transactions itself. A QPAM must be independent of both the plan and the parties in interest and act in the best interest of the plan, as well as other requirements.

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The proposal would expand the violations that could lead the Department of Labor to disqualify a QPAM to include foreign convictions for crimes that are “substantially equivalent” to U.S. offenses that would result in disqualification, as well as non-prosecution and deferred prosecution agreements for the same. It would also require the QPAM to indemnify clients for the cost of their disqualification and would allow for a year-long winding-down period for the disqualified QPAM to process previously-agreed-to transactions, but not any new transactions.

Allison Wielobob, the general counsel of the American Retirement Association, testified that these new rules will interrupt existing relationships and increase costs for plan sponsors and administrators, which would then be passed down to participants. Specifically, the indemnification requirement will force parties to renegotiate existing agreements, and QPAMs will have to account for this risk in their pricing, which participants will ultimately bear. She also argued that the year-long winding-down period is effectively no time at all, since it does not permit new transactions.

Robin Diamonte, the CIO at Raytheon Technologies and a Board Member of CIEBA, the Committee on Investment of Employee Benefit Assets, testified that plan sponsors rely on the QPAM exemption because it is not possible to keep track of thousands of parties in interest, so QPAMs are necessary to avoid violating ERISA transaction requirements. She also urged the DOL to allow fiduciaries to decide if a foreign conviction should be disqualifying, rather than the DOL itself.

Kevin Walsh, an attorney at Groom Law Group, expressed concern that malicious or opportunistic convictions in countries hostile to the U.S. could lead to disqualification of quality QPAMs and asked for a clearer framework on which convictions could lead to disqualification. He also discouraged a winding-down period which prohibits new transactions and said it “actively harms participants.”

In support of the regulation, James Henry, a global justice fellow and lecturer at Yale University, said that the DOL is not required to rubber-stamp bad-faith convictions in other jurisdictions.

Henry also said there is a large cost to under-regulating this industry and allowing bad actors convicted abroad to be QPAMs in the US. He cited the fraud violations of Credit Suisse, a Swiss bank, in Mozambique, and says the new proposal would have made it easier to disqualify them in the U.S., since they were able to settle with the DOJ without a criminal conviction.

Walsh argued that the DOL should not rely on unwritten rules for foreign convictions, and if it truly intends to exclude bad-faith foreign crimes, then it should re-propose the rule with a provision to that effect. He cites as an example Russia convicting a U.S. bank for a crime to retaliate against the U.S. for its foreign policy relating to the war in Ukraine.

Tim Hauser, the head of program operations at the EBSA, responded to the concern about malicious convictions abroad and said he had never seen the hypothetical that Walsh was describing and that the foreign convictions they are interested in are related to genuine corrupt practices. Walsh responded that this is based on DOL’s discretion and is not spelled out in the proposal itself.

Kent Mason, a partner at Davis & Harman LLP, proposed an alternative in which QPAMs convicted of a foreign offense or who enter into a non-prosecution agreement merely have to disclose that to their clients instead of being automatically disqualified. This proposal was not explicitly responded to by representatives of DOL during the hearing.

The comment period will remain open until December 16.

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