Voya jumps into 401(k) annuity game
February 13, 2015 by Marlene Y. Satter
With guaranteed lifetime income getting all kinds of attention nowadays, it’s only natural that increasingly, plan providers should jump aboard.
The addition of Voya Financial to the parade, then, is not surprising. Voya’s Retirement Solutions business on Tuesday announced it was introducing its Lifetime Income Strategy, which it describes as “a new retirement income investment option” for 401(k) plan participants who work for large employers.
The Lifetime Income Strategy option is, according to Voya, an “age-based, asset allocation program … designed to help participants convert their savings over time into a stream of guaranteed income that lasts throughout retirement.”
That bit about “a stream of guaranteed income that lasts throughout retirement” certainly sounds like an annuity, right? Voya, however, did not call its new offering an annuity in the news release that announced its availability. The company did confirm, however, that “this is a type of annuity which provides individuals with a guaranteed lifetime withdrawal benefit.”
Semantics aside, Voya said it decided a more effective communication and marketing approach would be in “framing the strategy in terms of the ‘solution’ rather than using technical product language.”
That may be a good call, because few Americans seem to know what an annuity is or what it does, as indicated by a TIAA-CREF survey just last week.
Among the general population, 65 percent are annuity-clueless, while among people aged 18-35, just 26 percent know about them, TIAA-CREF found.
But whether people know what they are or not, the industry has sensed an opportunity.
The TIAA-CREF survey also found that people are increasingly more concerned that whatever retirement income they have should be guaranteed for the rest of their lives, even more than they are concerned for the safety of the funds they’ve set aside from retirement.
As of last year, 40 percent of respondents said that the safety of their retirement money was their top priority. This year, just 29 percent said so, while the number of people looking for lifetime income jumped from last year’s 34 percent to 48 percent this year.
With so many people looking for guarantees, annuities have moved into the spotlight, particularly since the federal government last year officially declared they can be incorporated into retirement plans as qualified default investment alternatives.
AIG’s American General Life Insurance Co. jumped into the market last fall with its American Pathway Deferred Income Annuity for IRAs.
Another indication of how serious annuity providers have become about the potential for this product in retirement plans came in the recent release of a study from the Institutional Retirement Income Council titled, “Plan Sponsors and Retirement Income: What’s In It For Me?”
The study offers a variety of reasons why sponsors should consider the addition of an annuity option to retirement plans. These include reducing plan costs through the retention of assets that might otherwise be rolled over; retaining employees; and “improv(ing) workforce management,” which entails “offering a retirement income solution … to encourage a timely retirement for aging employees before they become unproductive.”
Oh, and the potential to avoid additional regulatory action: If retirement plans do not “deliver on their promise to successfully convert accumulated savings to retirement income,” then “the industry leaves itself vulnerable to legislative action that may force a less cost-efficient and less business-friendly model on employers,” the report said.
Voya pointed out one more important factor that might influence sponsors considering adding its Lifetime Income Strategy:
AllianceBernstein, which designed the offering, assumes the role of fiduciary, including taking on full responsibility for the selection of the multiple insurers who provide the guaranteed income, it said. This eliminates the fiduciary responsibility for plan sponsors to select and monitor the insurers.
With sponsors given such incentives, and participants looking for guarantees, annuities could be in for a substantial boost.
