LIMRA Says Advisers Key to Driving In-Plan Annuities

Advisers play a critical role in educating plan sponsors on in-plan annuities if there is going to be greater plan sponsor adoption, said Bryan Hodgens, head of distribution research, life and annuity research at LIMRA, in a LinkedIn webinar “In-plan Annuities: at a Tipping Point?” held on Tuesday.

Hodgens said the main challenge employers face when they consider including annuities as a retirement income option inside their retirement plan is the complexity of the investment. He added that plan sponsors also expressed that in-plan annuities were hard for the participants to understand and they found them complicated to manage.

“Some of those complexities are just getting the products into their current plan,” he said. “They’re going to have to change their investment policy statement and probably rework their retirement plan to offer a new offer a new in-plan annuity. There’s definitely work that has to be done, and that can be a challenge.”

According to LIMRA’s U.S. Individual Annuity Sales Survey, which covers 92% of the total U.S. annuity market, total U.S. annuity sales reached $106.7 billion in the first quarter of 2024, the firm announced Wednesday. This figure is 13% higher than the same period last year and marks the highest first quarter sales since LIMRA began recording this data in the 1980s.

In-plan annuities have been around for years to offer participants a pension-like investment vehicle for saving, though issues of complexity, cost and concerns over portability have been cited as a concern in implementing them. More recently, the offering has attention with a steady drumbeat of providers coming to market with target-date fund structures with embedded annuities, as well as recordkeepers, such as Fidelity Investments and Empower, incorporating them onto their platforms.

As the consultant and adviser community becomes more comfortable in giving guidance to plan sponsors on annuities, many of the challenges in implementing them can be resolved, Hodgens said. He emphasized the importance of continuing to help advisers and consultants understand how these products work and how they fit into the retirement plan.

“401(k) plans have always been designed as an accumulation vehicle,” he said. “In-plan annuities or out-of-plan annuities now allow us to really focus in on that decumulation aspect. Helping employers and participants understand how it works, how the annuity can drive income, how it fits within the bigger scope of the other assets in the plan—these are all really important. The education on that has to continue from all of us here in the industry.”

LIMRA research found the percentage of advisers encouraging sponsors to include retirement income products in investment committee meetings was 47%, a figure that has increased over the last few years. The data is from “Defined Contribution Advisor Views: Advisor Perspectives on Retirement Income,” based on 130 advisers surveyed between October to November 2022. Additionally, 86% of retirement plans are set up by financial advisers. Therefore, when advisers understand how annuities work, they’re more likely to recommend these products to plan sponsors, according to Hodgens.

“We ask advisers their level of knowledge that they’ve gained over the last few years on this, and for those that say, ‘I look at myself now as an expert on how in-plan annuities work,’ their comfort level translates into encouraging more annuities in investment venue lineups with the plan sponsors,” Hodgens said.

Retail annuities have hit numerous records dating back to last year, when interest rate hikes have made them attractive for consumers looking to lock in strong returns.