How In-Plan Annuity Sales Could Help Retail Advisors

What You Need to Know

Sponsors for 403(b) plans have offered in-plan annuity options for years.
Sponsors of 401(k) plans will warm up to them after a few years, Deana Calvelli says.
One obstacle she sees is a branding problem.

The push to add annuitization options to 401(k) plans could nurture an important set of prospects: the plan sponsors’ owners and top executives.

Building the in-plan annuity market at 401(k) plans will take years, according to Deana Calvelli, a vice president for wealth and retirement at NFP, which is now part of Aon.

The process will start with “education to help plan sponsors understand how lifetime income solutions can be viewed as another asset class, i.e., fixed income with a guarantee,” Calvelli said in an email interview.

What it means: Plan sponsors, annuity issuers and financial professionals need to educate the participants about the idea of converting some or all of their plan assets into a stream of lifetime income.

And, in many cases, they also have to educate the boss about that idea.

Even if the participants don’t have enough assets to meet an advisor’s minimum, the boss might.

The backdrop: Schools, municipal agencies and other nonprofit employers with annuity-based 403(b) plans have been offering in-plan annuitization options for many years.

Some asset managers have been offering similar options aimed at for-profit employers’ 401(k) plans for about a decade.

Now, provisions in the Secure Act and Secure 2.0 have made offering in-plan annuities more practical, and companies like BlackRock have started to offer programs that give the participants a chance to choose from a menu featuring two or more annuity issuers.

Executives from BlackRock, for example, are predicting that use of combinations of target-date funds with in-plan annuitization options will soon be the most popular 401(k) plan participant path.

But they indicated that initial sales have been slower than they had hoped.