DC Plan Sponsors Still Shunning Annuities

The top reason cited for not offering an annuity-type product in defined contribution plans is being uncomfortable or unclear about the fiduciary implications.

Half of defined contribution (DC) plans surveyed by Callan offered some sort of retirement income solution to employees, in 2018, with the most common solutions providing access to a defined benefit (DB) plan (27.4%) or offering a managed account service (14.2%).

Only 12.3% of the 106 respondents to Callan’s 2019 Defined Contribution (DC) Trends Survey indicated they provide an annuity as a form of distribution, 3.8% said they use an annuity placement service and 3.8% offer an in-plan guaranteed income for life product. The rate of plan sponsors that reported offering qualified longevity annuity contracts (QLACs) or longevity insurance in their plans remains low, at 1.9%, despite a 2014 Treasury Department ruling making it easier to do so.

Asked why they do not offer an annuity-type product in their DC plans, plan sponsors reported being uncomfortable or unclear about the fiduciary implications. Legislation has been introduced to try to address this problem.

Plan sponsors also report that an annuity-type product is unnecessary or not a priority and that there is a lack of participant need or demand. However, studies have shown that participants would prefer retirement income certainty.

Other reasons for not offering an annuity-type product in their DC plans cited by respondents include the difficulties in communicating to participants and concern over insurer risk. 

Full survey results may be found here.

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