TIAA Marketer: Put Deferred Fixed Annuities in 401(k) Plans
“These types of plan investments do not lose value,” Maffei said. “The value increases every single day, irrespective of what’s happening in the stock and bond markets.”
Retirement plans and individual workers can also use money market funds, bank certificates of deposit and stable value funds to cope with investment market volatility and provide income in retirement.
But, “oftentimes, a DFA can provide a better long-term return profile than either stable value funds or money market funds,” Maffei said. “In addition, activating the lifetime income feature at retirement can provide a competitive amount of lifetime income, because of the risk pooling that sits behind all insurance.”
Because a deferred fixed annuity is so much more efficient than a money market fund at providing guaranteed income, a worker with a DFA can invest a higher percentage of assets in stocks and stock funds, Maffei said.
The Reality Check
The investment strategists who bring out the garlic when they hear the word “annuity” reject the idea that the value of annuity guarantees is high enough in enough scenarios to justify putting annuities in retirement plans.
From Maffei’s perspective, the peace of mind annuity guarantees provide is priceless in almost any scenario.
He suggested that the list of concerns to consider when adding a deferred fixed annuity to a retirement plan is similar to the list of concerns for any annuity transaction, or any retirement plan investment menu decision.
“Be sure to understand any liquidity lockups or surrender charges,” Maffei said. “For products with discrete fees, do the appropriate comparison.”
For products without discrete fees, such as group fixed annuities, “compare products based on crediting rate levels, contract features, insurer’s financial strength as well as their history and commitment to this space,” Maffei said.
Phil Maffei II. Credit: TIAA
