Client Service May 22, 2024

LIMRA Says Advisers Key to Driving In-Plan Annuities

Advisers will play a critical role in working with sponsors if the product offering is going to get traction, insurance trade association research head says.

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Advisers play a critical role in educating plan sponsors on in-plan annuities if there is going to be greater plan sponsor adoption, said Bryan Hodgens, head of distribution research, life and annuity research at LIMRA, in a LinkedIn webinar “In-plan Annuities: at a Tipping Point?” held on Tuesday.

Hodgens said the main challenge employers face when they consider including annuities as a retirement income option inside their retirement plan is the complexity of the investment. He added that plan sponsors also expressed that in-plan annuities were hard for the participants to understand and they found them complicated to manage.

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“Some of those complexities are just getting the products into their current plan,” he said. “They’re going to have to change their investment policy statement and probably rework their retirement plan to offer a new offer a new in-plan annuity. There’s definitely work that has to be done, and that can be a challenge.”

According to LIMRA’s U.S. Individual Annuity Sales Survey, which covers 92% of the total U.S. annuity market, total U.S. annuity sales reached $106.7 billion in the first quarter of 2024, the firm announced Wednesday. This figure is 13% higher than the same period last year and marks the highest first quarter sales since LIMRA began recording this data in the 1980s.

In-plan annuities have been around for years to offer participants a pension-like investment vehicle for saving, though issues of complexity, cost and concerns over portability have been cited as a concern in implementing them. More recently, the offering has attention with a steady drumbeat of providers coming to market with target-date fund structures with embedded annuities, as well as recordkeepers, such as Fidelity Investments and Empower, incorporating them onto their platforms.

As the consultant and adviser community becomes more comfortable in giving guidance to plan sponsors on annuities, many of the challenges in implementing them can be resolved, Hodgens said. He emphasized the importance of continuing to help advisers and consultants understand how these products work and how they fit into the retirement plan.

“401(k) plans have always been designed as an accumulation vehicle,” he said. “In-plan annuities or out-of-plan annuities now allow us to really focus in on that decumulation aspect. Helping employers and participants understand how it works, how the annuity can drive income, how it fits within the bigger scope of the other assets in the plan—these are all really important. The education on that has to continue from all of us here in the industry.”

LIMRA research found the percentage of advisers encouraging sponsors to include retirement income products in investment committee meetings was 47%, a figure that has increased over the last few years. The data is from “Defined Contribution Advisor Views: Advisor Perspectives on Retirement Income,” based on 130 advisers surveyed between October to November 2022. Additionally, 86% of retirement plans are set up by financial advisers. Therefore, when advisers understand how annuities work, they’re more likely to recommend these products to plan sponsors, according to Hodgens.

“We ask advisers their level of knowledge that they’ve gained over the last few years on this, and for those that say, ‘I look at myself now as an expert on how in-plan annuities work,’ their comfort level translates into encouraging more annuities in investment venue lineups with the plan sponsors,” Hodgens said.

Retail annuities have hit numerous records dating back to last year, when interest rate hikes have made them attractive for consumers looking to lock in strong returns.

Compliance May 22, 2024

Digital Assets Legislation Passes House of Representatives

The bill would define the jurisdictions of the SEC and CFTC for crypto assets but it is likely to be vetoed by Biden.

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The Financial Innovation and Technology for the 21st Century Act passed the House of Representatives Wednesday by a 279-136 vote. The bill was first proposed in July 2023 and passed out of the committees of jurisdiction on May 6. The Senate has not yet taken up the bill.

Representative Patrick McHenry, R-North Carolina, and the chair of the House Committee on Financial Services, today spoke in defense of the FIT Act at the Investment Company Institute 2024 Leadership Summit, a bill he is a sponsor of.

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The act would create a regulatory structure for the digital assets industry and has been criticized by Gary Gensler, the chair of the Securities and Exchange Commission. McHenry characterized Gensler’s criticism sarcastically as “shocking,” at the conference as Gensler is known to be a harsh critic of the crypto industry generally.

If passed, the bill, also known by its bill number, H.R. 4763, would assign regulatory authority to the Commodity Futures Trading Commission of digital assets that are decentralized, as well as over the cash or spot market for digital commodities. Decentralized is defined in the bill as a crypto asset in which “no person has unilateral authority to control the blockchain or its usage, and no issuer or affiliated person has control of 20% or more of the digital asset or the voting power of the digital asset.”

The SEC would regulate digital securities that are not decentralized, with additional exceptions for those that limit annual sales or non-accredited investor access. All rulemaking for digital assets would have to be joint rulemakings of the SEC and CFTC if the bill were passed.

Gensler today identified some potential issues in the bill in his statement. He noted that the bill allows crypto issuers to self-certify that they are decentralized and only gives the SEC 60 days to review and challenge such a certification. Gensler said that the SEC does not have the staffing to review the large volume of digital assets. He also suggested that “pump and dump schemes and penny stock pushers” could falsely claim digital asset status to avoid regulation and the SEC would only have 60 days to review it.

Representative Sean Casten, D-Illinois, proposed an amendment to the FIT bill that would have extended this deadline to 90 days, but it was not accepted.

Gensler added that existing rules are clear enough, it is just that the crypto industry does not want to follow them: “The crypto industry’s record of failures, frauds, and bankruptcies is not because we don’t have rules or because the rules are unclear. It’s because many players in the crypto industry don’t play by the rules. We should make the policy choice to protect the investing public over facilitating business models of noncompliant firms.”

McHenry responded during an interview with ICI CEO Eric Pan that “right now we have no definition of digital asset” under the law and that the bill will provide regulatory clarity for the industry. McHenry added that “it is the Gensler regime that has made things less certain,” and he will continue to focus on “speaking to legislators that have actual votes” on the bill.

The White House said in a statement that “the Administration opposes passage of H.R. 4763, which would affect the regulatory structure for digital assets in the United States,” suggesting that a veto of the bill would be likely if it were to reach President Joe Biden.

During debate on the bill, Representative Stephen Lynch, D-Massachusetts, the ranking Democrat on the House Financial Services Committee Subcommittee on Digital Assets, described the act as among the “top three worst bills I have seen progress to the floor of the House.” Other opponents of the bill explained that it does not address crypto’s role in financing illicit activities and leaves much crypto enforcement to the CFTC, which traditionally has little experience working with intangible assets or in retail markets.

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