31 Dec

Regulators Got Real About In-Plan Annuities in 2014

December 19, 2014

With invigorated provider interest and new guidance from key regulators, 2014 turned out to be an important year for annuities in employer-sponsored retirement plans.

Final rules from the Treasury Department on longevity annuities—aimed at bringing more flexibility to retirement savers using the fixed-income vehicles as a longevity hedge—and additional guidance from the Treasury and the Internal Revenue Service—addressing the use of annuities in target-date funds—both speak to the use of annuities, and the question of income in retirement.

“The decision should definitely help plan sponsors, because obviously one of the primary responsibilities is helping participants to meet retirement readiness,” says Phillip Troyer, an attorney and vice president of compliance at Bukaty Companies Financial Services.

“The DOL’s recognition that annuities can play a role is helpful, because it does then provide a meaningful option for participants who don’t want to take a lot of market risk. They can plan around the money they have set aside. ‘If I buy an annuity, I’m going to have X dollars a month coming in, and I can budget around that,’” he explains.

One gain would be greater protection for plan participants in the event of another financial crisis, Troyer says. “They retire, and lose 40% of the money they set aside.”

Regulators adopted the annuity regulations fairly quickly quickly, observes Joe Connell, director of retirement plan services at Sikich Financial (formerly Retirement Plan Partners).

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