Data & Research August 24, 2017

Fiduciary Rule Requirements Disrupting Annuity Market

This was the sixth straight quarter fixed sales have outperformed variable annuity sales, which hasn’t happened in almost 25 years.
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Annuity sales during the first half of the year fell to a point not seen since the first half of 2001, according to research by the LIMRA Secure Retirement Institute. 

The organization reports that total annuity sales for the first half of 2017 decreased to $105.8 billion, marking a 10% decline from the first six months of 2016.

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LIMRA notes that second quarter results for total annuity sales rose slightly from last quarter to $53.9 billion, but they still reflected an 8% decline from this quarter last year. U.S. variable annuity sales in particular were $24.7 billion in the second quarter, down 8% compared with prior year results. This marks the 14th consecutive quarter of decline in variable annuity sales.

However, LIMRA says this is also the sixth straight quarter fixed sales have outperformed variable annuity sales, which hasn’t happened in almost 25 years.

“A closer look at what’s driving the drop in VA [variable annuities] sales reveals qualified VA sales have experienced a more significant decline than non-qualified VAs,” notes Todd Giesing, director of annuity research, LIMRA Secure Retirement Institute. “VA qualified sales were down 16% in the second quarter, while nonqualified sales were actually up 5%. This could be in reaction to the DOL fiduciary rule.”

Sales of fee-based variable annuities increased in the second quarter to $570 million, representing 2.3% of the total variable annuity market. LIMRA says that while this is a small portion of the overall variable annuity market, these products have seen continued growth over last year. Back in December 2016, research firm Cerulli Associates published a report indicating the fiduciary rule could drive reconsideration of fee-based annuities. The report also projected U.S. variable annuity sales to decline by at least 10% through 2018 as the industry adapts to regulatory changes under the rule.

Many annuity providers argue they won’t be able to meet the best-interest contract exemption (BICE) requirements, because of the commission-focused distribution structures of fixed-indexed annuities. Therefore, many could turn to fee-based products.

The second quarter 2017 Annuities Industry Estimates can be found at LIMRA.com.

Data & Research August 24, 2017

Auto-Plan Features on the Rise in 403(b)s

More than two in 10 403(b) plans now automatically enroll participants.
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In a survey of 608 non-profit organizations conducted by the Plan Sponsor Council of America (PSCA), the council found these non-profits are making improvements to their 403(b) plans, particularly with respect to auto-plan features.

Twenty-one percent of 403(b) plans now automatically enroll their participants, up from 19% in 2016 and 16.2% in 2014. Among the 21% of plans that automatically enroll participants, 52% pair that with automatic escalation, up from 43% in 2015.

The percentage of plans with a default deferral rate of less than 3% dropped in half, while the percentage of 403(b) plans with deferral rates north of 3% increased from 21.6% in 2016 to 34%. In addition organizations saw average employer contributions rise from 4.7% in 2015 to 5% in 2017.

The 403(b) plans with a qualified default investment alternative (QDIA) now overwhelmingly use target-date funds (65.8%) as opposed to money market funds (9.8%).

“Over the past several years, the PSCA survey has shown a steady increase in the use of automation and plan design enhancements,” says Aaron Friedman, national practice leader at Principal Financial Group, which sponsored the survey. “Automation is leading to greater plan enrollment, deferral rate escalation and employee contributions. The addition of these features tangibly helps participants boost retirement readiness in practical and customized ways.”

The 2016 PLANSPONSOR Defined Contribution Survey also found that 27.2% of 403(b) plans offer in-plan income products that guarantee monthly income, compared to 7.3% of DC plans overall. More than 12% offer in-plan income products that guarantee a base benefit, compared to DC plans overall.

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