ACLI Makes Annuity Case to Feds
February 13, 2015 by Arthur D. Postal, arthur.postal@innfeedback.com
WASHINGTON – The American Council of Life Insurers briefed members of a Treasury Department insurance advisory committee Tuesday on the importance of annuities as a component of the retirement portfolio of Americans.
The presentation by two ACLI officials, Alane Dent, vice president, federal relations, taxes & retirement security, and Jim Szostek, vice president, taxes and retirement security, is part of the growing interest by the Obama administration in life insurance issues, as well as concerns about the adequacy of retirement income for an aging population.
The briefing was made to the Federal Advisory Council on Insurance (FACI), a part of the Federal Insurance Office (FIO).
The FIO, headed by Michael McRaith, former Illinois insurance commissioner, is also paying close attention to the declining market share of life insurers in relations to the growth of the overall U.S. financial services market.
For example, in the FIO annual report released last September, concerns about the impact of low interest rates on the solvency of insurers, as well as a steep drop in the number of life insurance agents. This concern was confirmed by disclosure by officials of the National Association of Insurance and Financial Advisers (NAIFA) earlier this month that membership is estimated at about 37,000 to 38,000 members and the trade group seeks to increase that to 42,000 by June 30 in order to avoid an increase in membership dues.
NAIFA membership has been declining for more than a decade. For example, NAIFA had an estimated 144,000 members in 1994.
The lack of uniform advice on insurance products, which encompasses annuities, was another issued raised in the report.
And, the administration last November issued guidance specifically allowing target date mutual funds (TDFs) to include deferred income annuities as qualified default investment alternatives in employer-sponsored retirement plans. The ACLI had been working to facilitate broader use of annuities in qualified plans aimed at retirees for a number of years.
The FIO apparently plans to use the information as a means of securing support for policies aimed at encouraging people to use more insurance products as part of their planning for retirement.
In the presentation, Dent and Szostek used slides to illustrate that the U.S. population is aging. They cited LIMRA statistics indicating that 12.4 percent of the population was 65 or older in 2000, it is now 14.5 percent of the U.S. population, and will rise to 21.1 percent by 2050.
Another slide presented by Dent and Szostek showed that in 1970, 82.8 percent of U.S. workers held their assets in defined benefit plans, and 17.2 percent in defined contribution plans. However, in 2013, the ratio had shifted considerably, with 37.0 percent of assets held in defined benefit plans, and 62.1 percent in defined contribution plans.
Using those slides as examples, Dent and Szostek told those attending the meeting that the guaranteed income provided by annuities will grow increasingly important for people seeking financial security for retirements that can last decades.
The presentation also included data indicating that annuity owners are mostly older, with 65 percent having already retired. Moreover, the presenters said that, based on a 2013 Gallup Organization survey, the average age of an annuity owner is 70 and that 51 percent of annuity owners are women.
The presenters said that 80 percent of annuity owners have incomes below $100,000, 35 percent have incomes below $50,000, and only 7 percent have incomes greater than $200,000.
Dent and Szostek told the audience that according to the Gallup data, annuity owners feel they are financially prepared for retirement. The data from Gallup indicated that 82 percent say annuities are safe and an important source of retirement security; 90 percent say an annuity is an effective way to save for retirement; 84 percent say they intend to use the annuity for retirement income; 87 percent say they intend to use the annuity as a financial cushion for living beyond life expectancy; and 79 percent say they intend to use their annuity to avoid being a financial burden on their children.
The report to FACI by Dent and Szostek also disclosed that insurers now administer 20 percent of defined contribution plans and these plans hold $1.2 trillion in assets. Insurers also administer 1.2 percent of IRA plans, and these plans hold $790 billion in assets. The report to FACI also indicated that the total value of life and individual annuities is $2.3 trillion.
Dent and Szostek said life insurers are experienced and well prepared to help people save. In fact, they said, one out of every six dollars in Americans’ long-term savings is managed by life insurers.
The September FIO report said the red flag on the declining number of life insurance agents should have been raised years ago.
The report says industry officials say the agent sales force has decreased by one-third since the 1970s, and is expected to decline further as the baby boom generation enters retirement.
The report noted that the decline in producers “may partially explain” the 3 percent decline in individual life sales in 2013, ending two years of positive policy count growth.
“While the Internet has transformed how insurers and insurance producers interact with consumers, many consumers still prefer in-person contact with an insurance producer,” the report says.
It also says that despite the decline in the number of life insurance policies sold to individuals, “consumer surveys suggest that demand remains high, with one in four U.S. consumers expressing a need for more life insurance.”
