Annuity FYI Blog

Even though there are many Americans worried about outliving their savings, Americans do have more than $11 trillion saved in retirement plans.  The government has made some changes this week that will make it easier for Americans to transfer to a 401k annuity from their company 401k plans.  This information comes from The New York Times article, “New Treasury Rules Ease 401(k) Annuity Purchase,” by Mary Williams Walsh.

One of the biggest problems with the the 401k annuity transfer was that tax rules made it nearly impossible for any kind of a partial transfer.  People had to take an all or nothing approach and put their entire 401k into an annuity or none of it.  The government has relaxed the tax rules so that people will now be able to use just a portion of their 401k for an annuity and they won’t have to do all or nothing.

New rules will also make it easier for employers to get better terms from financial firms because employees will be able to see the fees being charged by these firms.  Running lifetime annuities is not something that employers want to deal with, so the changes being made by the government excite insurance companies eager to run annuities from retirement plans.  One change makes it easier for employers to work with insurance companies and other annuity providers so that 401 annuity transfers can be done at work and not through a separate advisor.

A treasury department spokesperson says that they are hoping for an increase in longevity insurance offerings.  This type of annuity doesn’t start until 15 or more years into retirement and is meant for the time in life when people tend to run out of money.  It usually starts around the age of 80 and is a perfect supplement for Social Security at a time when savings run out and health costs increase.  It’s much cheaper of course than a traditional annuity because you plan to use it when you are much older and it will likely be used for a shorter period of time.

The maximum that can be spent on longevity insurance is now capped at 25%, so that no one is “hiding” money there.  One more change the Treasury has made lies in the way it calculates minimum required distributions for those over 70.  The amount you have to withdraw yearly from your 401k will now exclude money that was used to buy an annuity or longevity insurance.

Written by Rachel Summit

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The National Association for Fixed Annuities (NAFA) recently had their summit to forecast what is ahead in 2012.  This information comes from Insurance News Net’s article “2012: Industry Views from the 2011 NAFA Summit,” by Rob Billingham.  He gives a summary of six expert opinions in the industry.

Altisure Group’s Niju Viswani believes that annuities will stay strong in 2012, but they will need continuing innovation to keep up with the switch from being accumulation focused to insurance focused.  You will see more death benefit annuity products and annuities with GLWBs.  Also, insurers will have to get creative to deal with the 10/10 regulation, annuities cannot have a surrender charge greater than 10% and it cannot last longer than 10 years.

Fidelity’s Cindy McGarity thinks that 2012 will see a large focus on regulation and suitability requirements.  She believes that companies will be focused on training and carrier consolidation and says that indexed annuities should continue a steady increase.  Brian Mann of Partners Advantage says you need to move past the low interest rates and volatile markets and focus on the guaranteed lifetime income that retirees seek.  Fixed equity indexed annuities with GLWBs offer the peace of mind that many retirees want; they aren’t as worried about the interest rates.

Consultant Harry Stout says that technological advancements and strong capital management will be important focuses for insurers in 2012.  He points out that many variable annuity carriers have started selling indexed annuities as the products have developed to include death benefits and GLWBs.  Mary Ann Lacey of Underwriters Marketing Service says that while she sees an increase in annuity sales, it will be for those who adapt to changing market conditions like tying annuities to long term care insurance.  Asset Marketing Systems’ Joe Anzelone sees increased fixed annuity sales and challenges related to increased regulation.  The experts agree on most of the 2012 annuity forecast.

Written by Rachel Summit

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Allianz Life recently found that the majority of Americans are searching for guaranteed income in retirement, but don’t know how to find it.  According to a company press release, Allianz Life Insurance Company of North America conducted a survey showing that 86% of non-retired Americans want to have a guaranteed income stream in their retirement.  That was the most popular choice for having a secure retirement; next was having a 401k plan, selected by 71% of those surveyed.  Transferring to a 401k annuity is an excellent way for those who already have 401k plans to receive the guaranteed income benefits of annuities.

Close to half of those surveyed said that obtaining this guaranteed retirement income stream was the most important retirement need that they had yet to meet.  They found it much more important than finding a job that offers a 401k or getting a diversified portfolio of investments.  The President and CEO of Allianz is not surprised to find so many Americans looking for a guaranteed income stream in retirement, but worries that Americans aren’t informed enough about the annuity products that can make this retirement income stream available to them.

Annuities pool risk, and they are the only retirement income products to do that, therefore annuities are the product to guarantee retirement income over your entire lifetime.  Of the non-retirees surveyed, only 8% currently have an annuity.  Shockingly, 40% don’t have any retirement investments at all and 26% don’t have a plan to get them through retirement.  Allianz Life is dedicated to working with consumers to educate them about the benefits of annuity products and help them make a secure retirement with a guaranteed income stream.

Written by Rachel Summit

Four more states and the District of Columbia will ensure that consumers are getting the best annuities by the end of this summer, according to Linda Koco of Insurance News Net.  In “More Annuity Suitability Rules Going into Effect This Summer,” the Annuity News editor says that the newest states to adopt the NAIC’s rules will be Rhode Island, Oregon, Ohio, North Dakota and Washington D.C.  The NAIC’s Suitability of Annuity Transactions Model Regulation (NAIC 2010) has been a model for many states to comply with the Dodd-Frank Wall Street Reform and Consumer Protection Act.  All states must comply by June 16, 2013.  States must ensure that insurance companies are selling consumers the best annuities for their situation and require agents to take a four hour class about annuities and their impact on consumers and taxes.

There are 17 states and territories that already have laws mimicking NAIC 2010.  Six states have plans already in the works, and a total of 28 states are expected to have working plans this year.  The Insured Retirement Institute (IRI) and RegEd, a compliance and education firm, are working together to provide the annuity training to agents and state governments.  The Oregon Department of Consumer and Business Services found that most insurance companies and agents have been receptive to the new rules, as long as they are similar to the NAIC guidelines.  In 2005, the state issued guidelines deterring the sale of unsuitable annuity products and these new guidelines have built from that initial model.  Products like the 5 year fixed annuity and other annuities must be the best choice for the consumer in order to pass the standard ruling.  All of the NAIC regulations keep insurers and agents accountable for protecting consumers from products that they should not buy because they aren’t in their best interest.

According to Linda Koco’s Insurance News Net article, “Illinois Ruling May Reopen Indexed Annuity, Securities Issue,” it seems as though Illinois’s Secretary of State is considering fixed indexed annuities securities.  After a three year investigation into two advisors practicing in the state, the May 24 ruling barred these particular advisors from selling securities in the state of Illinois.  The case involved annuity transfers from older annuities to fixed indexed annuities even though the older products were still in their surrender periods.  Because of this ruling though, it is evident that at least the state of Illinois classifies fixed indexed annuities as securities.

This is big news because after a long and tenuous battle, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 said that fixed indexed annuities were not classified as securities.  This Act made it so that advisors would not have to answer to the SEC regarding their annuities and pitted the insurance industry against many others in the business.  While the investigation found that two advisors operating in Illinois had made bad annuity choices for twelve of their clients, this is an isolated incident and does not reflect the annuity industry in general.  It does, however, bring back to light the argument over whether certain annuities, such as fixed indexed annuities, should be classified as securities and be subject to oversight by the SEC.  We will have to see if other states feel the same way as Illinois and if this brings a debate back into the federal government.