Annuity Consultants Tout SPIAs as Best Income Option

Single premium immediate annuities made up roughly 4% of the record-breaking $92 billion market for annuities through the first quarter of 2023, according to insurance industry association LIMRA. That market percentage may increase in coming years if the heads of a new annuity consultancy have anything to say about.

Michelle Richter-Gordon and Mark Chamberlain, who launched Annuity Research & Consulting in May, are touting the virtues of SPIAs to retirement plan advisers, recordkeepers and participants as a way to lock in a paycheck to supplement social security. The annuities, which are purchased in a lump-sum payment—for instance, from a retirement plan rollout—in exchange for regular income payments, is ideal for people close to or in retirement, according to the consultants.

Unlike some annuity boosters in the retirement plan space, Richter-Gordon and Chamberlain do not sell or earn fees from annuity sales. Therein, according to the consultants, may lay the biggest challenge in getting the overall industry to buy into SPIAs.

There is little incentive for brokers to suggest the annuities, according to Richter-Gordon, since they can make larger commissions off of other fixed-income annuities and generate further fees after the lock-up “surrender period” is over. Meanwhile, fee-only advisers have little incentive to suggest SPIAs, as it means an investor’s assets will no longer count toward fees charged according to assets under management.

“They call it annuicide,” says Richter-Gordon, referring to advisers who make fees off of AUM. “If you purchase an immediate annuity, which is one where you make the conversion from assets to income promises, then the assets that you use to purchase the guaranteed income in that case are no longer AUM-billable.”

The consultants also see an issue with the retirement industry’s quest for “in-plan” annuity options within defined contribution plans. While it may be a decent option to replace a fixed-income investment, it presents a “massive litigation risk” because of the need to properly educate participants and the risk of some insurers “not being around for the long-term,” according to Richter-Gordon.

Overall, a SPIA is a “product that is sort of the stepchild of the industry, and it has been for years,” Chamberlain says. “We begin with the position that it’s in the best interest of the consumer for all prudent tools to be in their adviser’s toolbox.”

Lifetime Income Illustrations

Last week, Richter-Gordon and Chamberlain took a step to advance their SPIA effort with the launch of an “e-guide” aimed at answering questions about lifetime income illustrations that are now being released in recordkeepers’ second-quarter statements.

For retirement plans relying on safe harbor provisions, the lifetime illustration is required by the Department of Labor via Section 203 of the Setting Every Community Up for Retirement Enhancement Act of 2019, which amended Section 105 of the Employee Retirement Income Security Act. The requirement is to provide a participant with one forecast based on a single life annuity and one based on a qualified joint and survivor annuity.

The illustrations are intended to “help workers in defined contribution plans to better understand how their account balance translates into monthly income in retirement and therefore to better prepare for retirement,” according to the DOL.

Annuity Research & Consulting’s digital guide, Retirement Soon, is intended to help plan advisers and sponsors explain the default income illustration to participants, according to Richter-Gordon and Chamberlain. It specifically delves into SPIAs and how they can be used by participants when they are close to retirement to supplement Social Security distributions.

“We are announcing this offering now because we know that second quarter statements with DOL’s lifetime income illustration will again be sent to DC plan participants,” Richter-Gordon wrote in a statement with the launch. “Again it will be incumbent on plan advisers to explain what this number means, as well as what participants are supposed to do about it, before the participant goes to talk to some non-objective salesperson who either sells them some awful product to make a commission, or to earn AUM on the roll[over] that may or may not best serve those participants who may actually need guaranteed income beyond Social Security to cover their basic retirement expenses.”

SPIA Options

The duo’s website includes SPIA platforms from suggested providers for modelling out the annuities. There is also guidance on what questions to ask a licensed professional.

The site is currently free, but it will cost $30 to access after August 1. Richter-Gordon and Chamberlain said the free offer is in part to encourage feedback from the adviser community.

“A significant percentage of plans (and some advisers) say they have no interest in discussing an annuity as an option inside 401(k) plans, although we’re sure most of those in that camp do care about their employees’ happiness after they leave full-time employment,” Richter-Gordon says.

She further notes that employers and plan advisers “may want to offer them this educational resource for compassionate reasons; others may just want education to help people gain the confidence to retire; and a third group may not want a market collapse to prevent people from ever retiring because they can no longer afford to.”