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Products & Services April 22, 2025
Comparing Insured and Non-Insured Payout Options
A recent issue brief from the American Academy of Actuaries examines the insured and non-insured options currently available that can be offered through employer-sponsored retirement DC plans.
Reported by PLANADVISER staff
The following table presents a high-level comparison of the insured and non-insured options that are generally offered through employer-sponsored retirement plans.
*SPIA = Single Premium Immediate Annuity
†DIA = Deferred Income Annuities
‡QLAC = Qualified Longevity Annuity Contracts
¶GLWB = Guaranteed Lifetime Withdrawal Benefit
| Income guaranteed for life |
PRODUCT TYPE | ||||||
| Insured Approaches | Non-insured Approaches | ||||||
| SPIAs* | DIAs† and QLACs‡ | GLWBs¶ | Systematic Withdrawals | ||||
| Yes | Yes | Yes, insurers provide benefits after account balance is depleted | No | ||||
| Liquidity | PRODUCT TYPE | |||||||
| Insured Approaches | Non-insured Approaches | |||||||
| SPIAs | DIAs and QLACs | GLWBs | Systematic Withdrawals | |||||
| Pre-income commencement | Yes, premium not paid until payout commencement | Usually (for plan-selected DIAs only, not QLACs) | Yes, account balance | |||||
| Post-income commencement | No | No | Yes, account balance | |||||
| Post-retirement death benefit to heirs | Premium less benefits paid if “cash refund” feature is selected or any remaining “period certain” payments if that feature is selected (both have a “cost” of lower payouts) | Remaining account balance | ||||||
| Downside protection | PRODUCT TYPE | ||||||
| Insured Approaches | Non-insured Approaches | ||||||
| SPIAs | DIAs and QLACs | GLWBs | Systematic Withdrawals | ||||
| Pre-income commencement | No, in particular, participants are subject to point-in-time interest rate risk, which can be partially mitigated if premium is accumulated over time in a fixed income account that mimics annuity purchase rates | Yes | Yes, as soon as the “benefit base” is established | No, but participants can mitigate downside risk by investing conservatively | |||
| Post-income commencement | Yes | Yes | Yes | No | |||
| Upside potential | PRODUCT TYPE | ||||||
| Insured Approaches | Non-insured Approaches | ||||||
| SPIAs | DIAs and QLACs | GLWBs | Systematic Withdrawals | ||||
| Pre-income commencement | Yes, premium not paid until payout commencement | No, guaranteed income locked in at time of purchase | Yes, fund returns if the base product is a VA, market index if FIA; insurer may limit upside | Yes | |||
| Post-income commencement | No | No | Account value can grow with fund returns (VA) or market index (FIA), and guaranteed lifetime withdrawals under some designs | Yes | |||
| Fees | PRODUCT TYPE | ||||||
| Insured Approaches | Non-insured Approaches | ||||||
| SPIAs | DIAs and QLACs | GLWBs | Systematic Withdrawals | ||||
| No explicit fee; instead the payout rate reflects the cost to provide the lifetime income guarantee | There is an explicit or implicit product fee/cost (or both) that lowers returns | Investment and administration fees to maintain the account—usually percentage of balance—but generally no fee if participant does their own systematic withdrawal | |||||
| Simplicity | PRODUCT TYPE | ||||||
| Insured Approaches | Non-insured Approaches | ||||||
| SPIAs | DIAs and QLACs | GLWBs | Systematic Withdrawals | ||||
| Easy to understand | Relatively simple | Can be complex | Range from easy to understand to complex | ||||
Source: American Academy of Actuaries, "Decumulation Strategies: Creating Lifetime Income from Defined Contribution Plans"
