Although they still amount to little more than a blip on the radar screen, income guarantee arrangements incorporated into defined contribution plans are growing rapidly in popularity. Such arrangements consist of either deferred annuity contracts or guaranteed lifetime withdrawal benefit (GLWB) plans.
A recent survey by LIMRA based on eight large insurance carriers found a 32% jump last year in the number of plan participants with access to an in-plan guarantee product. Specifically, the number grew from about 2.3 million 3 million.
The actual number of plan participants who took advantage of that opportunity within the LIMRA database, however, was 71,300, up 24% from 2013. For perspective, the Department of Labor estimates there are 91 million participants in private sector defined contribution plans.
Popular among smaller plans
In-plan guaranteed income products are most popular among plans with below $10 million in assets, according to Mark Paracer, assistant research director at LIMRA. We believe thats because they tend to have the closest relationships with the carriers that are offering these products, he says.
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An earlier LIMRA survey found that 80% of U.S. workers believe that employers should provide ways to convert savings into retirement income. Paracer believes that fact, along with increasing employer focus on retirement readiness, will continue to fuel the growth of in-plan guaranteed income arrangements.
The first QLAC
Meanwhile, one form of annuity, the qualifying longevity income contract (QLAC) just received a boost when MetLife announced it has just launched such a product for the defined contribution market. Regulations governing the use of QLACs in retirement plans were finalized by the Department of the Treasury in July 2014.
These annuities kick in late into a retirees retirement and can provide a cost-effective solution for retirees willing to use part of their savings to protect against outliving the rest of their assets, and can also help them avoid overcompensating by unnecessarily limiting their spending in retirement, the agency stated at the time.
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The significant change brought about by those regulations is that assets used in a plan to fund the QLAC are not used in the calculation of plan participants required minimum distributions (RMDs) that must begin to be distributed when the retiree reaches age 70½.
MetLife was the first carrier to offer a longevity annuity for use outside a retirement plan, in 2004.
The MetLife Retirement Income Insurance product can be purchased either on a single life or a joint life basis covering two spouses, with benefits lasting until the surviving spouse dies. The product also can be modified with several inflation-protection options.
Richard Stolz is a freelance writer based in Rockville, Maryland.
