It has been a couple of weeks since we’ve last posted a blog, and with good reason. Between Evan, Monica and I, this two month span has us doing some 15 presentations and articles, whie keeping up with clients (and a couple of us squeezing in some overdue vacation time!). Monica is speaking this week at the Plan Sponsor 403(b) Summit in Orlando; Evan will be speaking this week at a TIAA Client Forum in DC and at the CUPA Eastern Regional Conference in two weeks; and I am speaking at the IRS/ASPPA Great Lakes benefits Conference in Chicago next week and the NIPA Annual Conference in Las Vegas the week after. Come up and say hi if you see us!
DC annuitization seems to be picking up a head of steam recently, with attention being paid to guaranteed income streams because of the effects of the recession on 401(k) and 403(b) accounts. As our good friend and fellow blogger Jerry Kalish has posted, the train is pulling out of the station. The Retirement Security Project has been espousing this for a few years; many of the major insurance have developed products specifically for this market; and even mutual fund companies are working with insurers to develop solutions. We have also blogged and published on this issue a few times.
Now Phyllis Borzi, the President’s nominee for Ass’t Secretary of Labor for the EBSA, is reported to hold the same conviction as well.
So, the real question is now what? Most consultants, TPAs and lawyers have only a passing familiarity with annuities, particularly the new breed of annuities which offer innovative guarantees. How does one go about deciding which annuity is right, whether the fees are appropriate, and whether the insurance company is solvent enough? How do you explain their features to plan participants, and what part does it play in an employer’s benefit program? What do you need to know about state guarantee associations, and what about rating agencies and the problems they now seem to be having?
In short, the things a plan has to look at to buy these financial guarantees creates quite a "fog" for an industry unaccustomed to them. The products are not difficult to understand, but their features, documentation and issues are much different than the typical plan investment we have been dealing with over the past few decades.
The DOL has made a first stab at things, publishing an annuity safe harbor designed to assist fiduciaries in their choice of annuity policies as a distribution option under their individual account plans. The insurance industry is not enamored by the safe harbor, as it seems to set some pretty high standards for fiduciary review, one which competing long term investments don’t seem to have to suffer.
Imperfect as they may be, take a look at the DOL regulation. It does provide a chance to help begin to understand these products so that fiduciaries may become more comfortable with them. We’ll be addressing a number of those issues raised in the reg in the next few blogs.