Annuity options are more prevalent in 403(b)s and many plans offer multiple service providers. With more service provider choices, it may require greater need for employee education because employees will not only need to decide an asset allocation, but must also make a service provider decision.
However, as it relates to participant disclosures, having an annuity option is not necessarily a challenge, Doug Roggow, director of institutional product management at TIAA-CREF, told PLANSPONSOR. Variable annuities and guaranteed fixed income investments align very well with disclosure requirements. Variable annuities - distributed by prospectus, have readily available information and have an expense ratio similar to mutual funds.
For general account products or fixed income products, the Department of Labor (DOL) acknowledges that for a product with a stated rate of return and term, it is not pertinent to have some type of expense ratio related because the real driver of income is the rate being offered, the term of that rate, liquidity features and any other fees associated with the products. Other fees could include liquidity restrictions because the general account is invested in very long-term investments, and liquidity could require a surrender charge. TIAA-CREF has taken the position that it discloses an expense ratio as part of provider disclosures so sponsors can prepare, but as it relates to participant disclosures, it doesn’t provide one, Roggow said.