Embedding annuities into target-date funds might be the key to offering annuities as an investment option in 401(k) plans.
Despite mounting interest in retirement income products, 401(k) plan executives have been slow to offer annuities as a stand-alone option because of their complexity and price.
MetLife Inc., New York, became the first to have its annuity product included in target-date funds when executives inked a deal with Barclays Global Investors, San Francisco.
In March, BGI selected MetLife to provide the annuity portion of its SponsorMatch program. SponsorMatch combines a target-date fund with institutional investment strategies managed by BGI and a deferred fixed-income annuity element provided by MetLife. SponsorMatch seeks to control exposure to market risk over time by increasing the funding to the annuity payout as the participant ages.
Jody Strakosch, national director of institutional income annuities for MetLife, said the deal with BGI was a big first step; now, MetLife executives are talking to other money managers about introducing something similar. She declined to name the managers.
Income products are a very hot topic. Its the record keepers, the money managers; anyone involved is trying to crack the code. One way is to include guaranteed income into a target-date fund, she said.
Trisha Brambley, president of Resources for Retirement, Newtown, Pa., said combining annuity options with target-date funds is the logical next step. To really tap into the market, providers must come up with innovative ways. (Providers) have seen the success of target-date funds and getting their product in there would be significant, she said.