T
alk about strange bedfellows. The federal government, courtesy of proposed regulations and rulings from the Departments of the Treasury and Labor, has started encouraging Americans to consider using annuities to help create a lifetime retirement income. That sounds like the makings of a healthy relationship with good feelings flowing from both the government and the industry. But how does it play out for independent agents and advisors who recommend and sell annuities in the individual market? After all, the measures focus on the retirement plan market, so what’s in it for them? And, not to be overlooked, the moves have a “federal” stamp on them. Things federal don’t exactly sit well with many advisors, especially those who remember the Securities and Exchange Commission (SEC) effort a few years ago that would have prevented non-securities licensed producers from selling fixed indexed annuities. That controversial Rule 151A failed, but advisor distrust of big government still lingers. And it is being stirred up again this year by proposals to impose new taxes on contributions to retirement 34
InsuranceNewsNet Magazine
April 2012
plans and IRAs and new taxes on life insurance sold to businesses. So what will the government’s new initiatives on lifetime income options and annuities mean? Should the independent producer embrace the measures or keep them at arm’s length?
The Initiatives To sort this out, let’s review what the Treasury and Labor documents entail first. There are proposed regulations and there are final rules—and the provisions in both are extensive. Some of the key annuity provisions include: • A Treasury proposal to “encourage” the inclusion of partial annuity options in employer-based retirement plans, making it easier for workers to split funds in their plans between cash and a lifetime income stream from an annuity. • A Treasury proposal to make it easier for workers to use part of their retirement accounts to buy longevity annuities (deferred income annuities (DIAs) that start their payouts many years after retirement, typically at age 85).
• An Internal Revenue Service (IRS) ruling that clarifies plan rollover rules involving purchase of annuities. • An IRS ruling that clarifies protection of spousal rights involving purchase of longevity annuities as well as other deferred annuities in 401(k) plans. • Labor department final rules that provide for increased transparency about costs and fee disclosure in retirement plans. None of this is mandatory on retirement plan sponsors. Rather, the various provisions are designed as “guidance” that will remove obstacles to including annuities with retirement plans.
Praise, Indifference and Concern On the very day the government announced those initiatives, two Washington-based insurance trade groups— the Insured Retirement Institute and the American Council of Life Insurers— issued statements lauding the annuity proposals. Other trade groups followed,