Russell Shows How to Evaluate In-Plan Annuities

Divided into two parts, the research paper’s first section provides background about the current state of the industry and discusses the appeal of in-plan guaranteed income solutions through the description of two available product types: variable annuities with guaranteed lifetime withdrawal benefits (GLWB) and fixed life annuities. The second section presents an income framework for comparing in-plan guaranteed income solutions through a case study analysis and provides a comprehensive checklist of how plan sponsors can apply this guidance.   

“We focus on how to quantify and compare alternative solutions in terms that matter to participants—income terms and remaining account values — in order to better align the selection process with what participants want,” said Josh Cohen, defined contribution (DC) practice leader at Russell Investments. “Currently most research on guaranteed products compares the features of various offerings but lacks a practical, quantitative framework for plan sponsors to use in evaluating the expected benefits of available options in different market environments.”  

In applying this framework, Russell’s research also dispels some of the often-touted benefits of the GLWBs, in particular the ability for the level of income received to increase over time as the market increases. The research indicates that this boost will likely occur only in the most optimistic market environments and that traditional life annuities are likely to generate higher guaranteed income in most markets. However, GLWBs still provide longevity protection and offer the key advantage of allowing participants to tap into their account for liquidity at any time.  

The research report can be downloaded from here.