Some would argue that annuities and 401(k) plans should never mix. To those individuals, we say brace yourselves, because legislation is being considered in Congress that could clear a path for more employers to offer annuity products in their retirement plans.
The mere mention of annuity products suddenly populating the investment menus of company-sponsored retirement-savings plans will immediately send some financial advisers to the edge of hysteria in their warnings of the myriad risks.
Despite its straightforward goal of producing fixed annual income, often for life, the annuity moniker carries a considerable stigma in some segments of the financial services industry.
We are all familiar with the horror stories tied to annuity products. Over the years, annuities, which come in multiple stripes and flavors, have been derided for high fees and commissions, questionable returns and mind-numbing complexity.
As cited last week by InvestmentNews reporter Greg Iacurci in his cover story on efforts to increase retirement-saver access to annuities, the executive chairman of Fisher Investments, Ken Fisher, was quoted as claiming, "I would die and go to hell before I would sell an annuity."
Such passionate opposition notwithstanding, some lawmakers are starting to warm to annuity products as part of the potential solution to a nation inhabited by people who don't seem able to save enough money for retirement.
And let's be clear that not all annuities are overly complex and expensive; some are more closely aligned to straight insurance for old-age income. Lumping every variety into a single item one loves or hates discourages deeper evaluation based on a client's particular needs.
As InvestmentNews senior reporter Mark Schoeff reported, the Retirement Enhancement and Savings Act of 2018 introduced last month in the Senate, along with a version of the bill in the House of Representatives, has bipartisan support, and proponents range from the Insured Retirement Institute to AARP.
While annuity products are already offered as investment options in nearly 10% of company-sponsored retirement plans, most plan sponsors continue to shun them because of the fiduciary responsibility of having to vouch for the financial viability of the company insuring the annuity.
Guaranteeing the financial viability of a company insuring an annuity product is no small thing. But Congress apparently views it as a snag that can be smoothed over by placing that responsibility on the shoulders of state insurance regulators, who already are charged with that oversight.
Doing away with that redundancy, in the eyes of Congress, means the plan sponsor would only be expected to ensure that the insurer passed muster by a state regulator.
But to those ardent anti-annuity enthusiasts now preparing to take to the streets, we say hold your horses.
While the idea of leaning on annuity products to solve a retirement-savings problem might seem akin to inviting the fox into the hen house, this might not be that bad of an idea.
For starters, even if plan sponsors are relieved of some portion of their fiduciary duty, they would not be completely off the hook. They will still have a fiduciary responsibility to prudently select the insurance companies whose products are going to be offered in the plan.
And, as a potential law, its ultimate success will depend on the ability of lawmakers to walk the fine line of making it available in retirement plans while at the same time protecting employee-savers from unscrupulous providers and products.
If in some respects the strategy looks desperate, it might be because Congress is well aware of the grim statistics involving retirement savings in the United States: The average 401(k) balance hovers around $104,000, and 20% of Americans aren't putting away any of their annual income for retirement.
With that in mind, perhaps we should applaud Congress for its effort. It's a step that might help encourage plan sponsors to open their minds to annuity products, while also keeping their guard up.