“Why are annuity investments so prevalent in 403(b) plans?”
Stacey Bradford, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:
Though the percentage of 403(b) plan assets invested in annuity contracts has declined over time, there are several reasons why annuities remain a popular investment in 403(b) plans, as follows:
- Until 1974, annuities were the ONLY permissible investment in 403(b) plans.
- Since 1974, outside of church 403(b)(9) retirement income accounts (a tiny portion of the overall 403(b) market), the only two types of permissible investments in 403(b) plans are annuity contracts and custodial accounts (more commonly known as mutual funds).
- Though mutual fund investment has been permitted since 1974, there was little actual mutual fund investment in the first decade or so that mutual funds were available in 403(b) plans.
- As described in a prior Ask the Experts column, annuity contracts can be “sticky,” meaning their assets are in contracts that may only be moved with the consent of individual plan participants, as opposed to at the direction of the plan sponsor.
Thus, annuity contracts can be found in many 403(b) plans, a fact which is unlikely to change in the near future.
NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.