Annuity FYI Blog

The deadline has passed for the government’s RFI regarding offering annuities as a 401k option for retirees.  According to The Columbus Dispatch’s article “Lifetime annuity may become new payout option for 401(k),” author Robert Powell says that the consensus from the RFI seems to be that there is no consensus.  The U.S. Labor and Treasury Departments received more than 600 letters with opinions on the 401k annuity.  The government’s hope is that through annuities offering a lifetime stream of income to retirees, Americans will have a more secure retirement relatively free of financial worry.

Experts have been asked what will likely come from all of the information the government has received.  They believe that regulators and lawmakers will probably make lifetime income annuities a necessary option for 401k distributions.  Other countries already have this option in place.  They also think the government might add annuities to QDIAs, or qualified default investment alternatives.  There is no harm in offering annuities to retirees as long as they are fully informed on the benefits and risks.  No one will be forcing anyone into actually purchasing an annuity with any or all of their 401k funds.  It will just be an option offering guaranteed lifetime income in retirement.

The National Association of Unclaimed Property estimates that there is $33 billion of money out there unclaimed, according to World Buzz Now’s Kevin Ruelan.  His article “Unclaimed Money From The Government: Do You Think Your Missing Money?,” explains that the average person owed unclaimed funds has at least $280 waiting for them.  This money comes from a variety of different places.  Sometimes it’s from accounts you’ve forgotten about, other times you may not have even known about the money because of an inheritance or tax refund.  There is a lot of money in the U.S. Treasury just waiting to be claimed and growing at a staggering rate.

Many people out there receive a death benefit annuity when the person who owns the investment dies.  It’s possible that you would not even be aware of this annuity, so the money is sitting out there owed to you.  People that don’t keep good track of their accounts with financial institutions or companies that have lost contact with you or become inactive may have money out there.  A lot of times people forget to change their addresses with everyone when they move or forget to cash a check.  Checks get lost in the mail as well.  Money could be from checking or savings accounts that haven’t been closed, stocks, annuities, dividends, uncashed paychecks, refunds, payments from insurance companies or over payments.  It won’t hurt to research whether or not you have unclaimed funds out there.

Allianz Life plans to expand this year after a strong first quarter profit, according to “Allianz Life annuities add to strong quarter” by Dan Browning of Minnesota’s Star Tribune.  Their operating profit was $110 million, based on their strong operations, an asset base that is growing and capital markets that are stable.  Their fixed indexed annuity sales increased 27% over the last year’s first quarter premium sales.  Allianz will be introducing a new and unique fixed indexed annuity product in conjuction with PIMCO, their sister company.

They currently employ over 2,000 people at Allianz Life and because of their strong growth, plan on hiring around 150 more workers this year.  With assets around $90 billion, Allianz saw an increase of 16% from where their assets were during the first quarter of last year.  After suspending variable annuity sales for 5 months in 2009 due to turbulence in the market, Allianz recommitted to some of the best annuities and premiums increased more than 40% in the first quarter.  This June they plan to open up their variable annuities to a broader range of distribution networks.

Jackson National Life Insurance Company had a press release Monday introducing their newest annuity option, “Jackson Introduces LifeGuard Freedom 6SM Net GMWB.”  The guaranteed minimum withdrawal benefit allows investors to increase their withdrawal amounts, thereby increasing their overall income and reducing their tax liability.  The benefit is optional and comes at an extra charge.  It is available on all of the variable annuities in Jackson’s Perspective group of products.  Those who opt for this LifeGuard Freedom 6 Net can lock in yearly increases to the guaranteed withdrawal balance if there is an increase in the value of the contract greater than the withdrawal adjusted premium payments.  Investors may also be able to receive a bonus of 6% annually by not taking withdrawals for the first ten years of the contract.

Annuities with this GMWB may allow for a 4 to 7% withdrawal, depending on the age at which they take their first withdrawal.  A portion of taxable earnings on this annuity can be covered by investors’ ability to gross up their withdrawals.  Jackson’s goal with this new product is to offer more flexibility and customization to advisers.  The LifeGuard Freedom 6 Net also offers a Joint Option which will provide death benefits to spouses.  The options available from Jackson are all meant so that investors can take advantage of what works for them and their individual goals.  Investors only pay for the options they want and have no obligation to use those they do not.

Fee-based annuities are the newest in demand product, according to “Big insurers launching fee-based annuities” by Investment News’ Darla Mercado.  These simpler and lower-cost annuities are geared towards dually registered advisers.  One of the first products is Allianz Life Insurance Company of North America’s fee-based variable annuity.  The company just filed their request with the SEC and is looking into similar new products to release next year.

New York Life Insurance Co. is also looking to release a fee-based single-premium immediate annuity sometime this year.  While MetLife Inc. is looking into releasing a similar product, they don’t have anything definitive right now.  Traditionally, fee-based advisers have not shown much interest in annuity products.  After the financial crisis though, they seem open to products offering guaranteed lifetime income.  Some smaller insurers have had success in offering similar products to fee-based and fee-only advisers, but the sales account for a minuscule amount of the annuities market.  Time will tell whether large insurers will have similar success with fee-based annuities.

There are many options for these fee-based annuities.  New York Life offers a trailing basis-point commission instead of a one-time commission up front.  They also have an option where the annuity is in a managed account program similar to fixed indexed annuities.  Fee-based advisers are often looking for the lifetime income benefit without all of the other benefits annuities offer for an extra charge.  These fee-based annuity products may be just what they are looking for.