Experts Discuss Participant Interest in In-Plan Annuities

Industry experts reviewed what companies are doing to engage participants with in-plan annuity options during a webinar hosted by the SPARK [Society of Professional Asset Managers and Recordkeepers] Institute.

The panel explored how professionals are addressing lifetime income product adoption, integration, scalability and customer experience with participants who may be reluctant about in-plan annuity options. Doug McIntosh, vice president of investments at Prudential Retirement, said the SECURE [Setting Every Community Up for Retirement Enhancement] Act’s provision to remove the 59.5 age barrier for service withdrawals is a relief to sponsors and participants alike.

McIntosh said Prudential noted that most participants valued control over their assets, especially during the COVID-19 pandemic when access to emergency savings is critical. “We came to market with a vehicle that offers a living benefit; participants still have control of underlying assets but derive lifetime income for participants and spouses,” he said. 

Sherrie Grabot, founder and chief executive officer at GuidedChoice, said participants are more likely to show interest in in-plan options if they see potential income projections. When such projections are offered, Grabot said she has noticed a change in behavior among participants, including when GuidedChoice rolled out a product in 2011 that allowed participants to see their projected retirement income numbers. “You have to show the income coming out of the defined contribution [DC] plans,” she encouraged. “It increases savings rates when they see that income level.”

On the subject of retirement income, Mike Westhoven, product leader at Micruity, explained the cost of retirement and misperceptions when it comes to annuity fees. An affordable retirement has become synonymous with annuity fees, he said, and annuity pricing has long been regarded as pricey. However, Westhoven said, if a participant refuses an annuity, the future retiree will end up needing to save an estimated $20,000 to $30,000 more to afford the same retirement as one with an annuity. He encourages employers and advisers to ensure their participants and clients understand the misperception. Those who refuse an in-plan annuity option could potentially benefit from one.