More investment management firms are gearing up to offer annuities as options to 401(k) plans as participants look for guaranteed retirement income in place of the rapidly disappearing defined benefit plans.
Currently, Genworth Financial Inc. and MetLife Inc. are the only major providers offering annuities as options to 401(k) plan sponsors. Prudential Retirement Services plans to offer several annuity-like funds to the defined contribution market by the end of 2006, and ING is considering an annuity fund as well.
"The DC plan is becoming the primary tool for saving for retirement, but they are typically more accumulation oriented. The question has become, how do you help these people that are saving money … to have income they cannot outlive," said Fred Conley, president of the institutional retirement group at Genworth, Richmond, Va.
Genworth, which began offering an annuity fund in the spring, said two plan sponsors added add the option effective Jan. 1, he said. He declined to identify the plans. "We are pleased with the feedback we're getting from the (plan sponsor) pipeline. We expect the next phase of plan adoptions to go quicker. We're optimistic for next year," he said, although he declined to provide sales goals.
With ClearCourse, which is Genworth's annuity, each contribution a participant makes buys a piece of an annuity that provides guaranteed income for 20 years or life, whichever is longer, upon reaching 65. Because the program is just another option in a 401(k) plan, participants can start and stop contributions at any time; the size of the payout is contingent on how much money the participant puts in. Assets invested in the annuity fund are invested in a total-return mutual fund managed by GE Asset Management Inc., Stamford, Conn. At age 65, participants can choose whether to convert part or all of the assets to a guaranteed income stream.
At New York-based MetLife, 18 plan sponsors signed up for its Personal Pension Builder annuity, with most plans going live with the option Jan. 1, said Jody Strakosch, national marketing director for institutional income annuities. She would not identify the plans.
Ms. Strakosch expects initial participant interest to be slow. "Inertia is a big factor in this industry. But we are starting to get into a steady trickle. We're very optimistic for 2006," she said.
The Personal Pension Builder assets are managed by Merrill Lynch Retirement Group, Pennington, N.J.; participants are guaranteed income at retirement.