Annuities - An IRA Solution

The 401(k) system has passed its stress test. Plan sponsors have continued to offer and even improve their programs through a most difficult economic period. Participants have continued to save and invest in their 401(k) plans for the long-term. According to the Employee Benefits Research Institute (EBRI) “91% of 401(k) participants with account balances at the end of 2007 through 2009 are estimated to have more money in their 401(k) accounts on March 1, 2011 than they had at the pre-recession market peaks in October 2007.” Nevertheless, the ultimate measure of the 401(k) system's success will be 401(k) participants’ ability to translate their accumulations into financial support after they retire.

Plan sponsors have gone to considerable effort and expense while accepting fiduciary exposure in order to deliver successful accumulation opportunities to their employees. They care about their retiring workers and want them to have the best possible outcomes. At the same time sponsors do not want to make retirement distribution decisions for their retirees.

Annuities delivered through defined contribution plans are insurance company products. As a fiduciary, those individuals involved in the selection of the plan’s annuity provider are personally liable for that decision as long as they are alive, and the liability may even pass on to their estate when they are dead. Furthermore, research indicates that few defined contribution plan participants select a plan provided annuity distribution option when one is offered.

The provider community is well aware of the situation and has responded by developing and marketing many new lifetime income products. Some are “in-plan” products that permit investment during the accumulation phase. Others are distribution-stage products with much more flexibility than the traditional products. At the same time the insurance industry is now marketing annuities on IRA platforms where individuals interested in purchasing an annuity are presented with competitively priced alternatives.

IRA delivered annuity solutions also allow the retiring participant:

• Access to a broad range of annuitization options.
• The ability to annuitize only a portion of their retirement assets.
• Access to multiple providers so they can diversify their investment risk.]
• The ability to make multiple annuity purchases over time.
• Access to annuities with inflation protection.

For those PSCA member companies who want an alternative to an in-plan annuity distribution option, PSCA is now making available the Hueler Income Solutions® platform. The Hueler Income Solutions® platform allows retirement plan participants to obtain customized quotes on a real-time basis and evaluate directly comparable contracts from multiple companies. Costs are another important consideration. Investment management, distribution, administrative and other costs associated with fixed annuity products are reflected in annuity quotes. As a result, the “apples-to-apples” comparability of quotes at the time they are obtained is critical in evaluating whether contracts are competitive among their peers. The quotes will be competitive because of the low, fully disclosed, transaction fee. This annuity purchasing portal includes a robust education component but does not include access to guidance.

To address the plan sponsor concern that “in-plan” options such as income annuities will lead to added fiduciary responsibility and increased plan complexity, this program will be offered to participants as an IRA rollover option. Organizations accessing The Hueler Income Solutions® platform through PSCA avoid the standard connection fee charged to individual plan sponsors. PSCA will not receive any remuneration in the event a plan participant chooses to purchase an annuity through the Income Solutions® platform.

"This collaborative effort presents a tremendous opportunity for plan sponsors to provide information about this increasingly important form of benefit to their employees." says Kelli Hueler, CEO of Hueler Companies. "Access to low cost annuities through a transparent, objective platform can meaningfully improve monthly income amounts for transitioning employees who seek to 'pensionize' their hard earned retirement savings and maximize their lifetime income stream."