Is Congress Set To Unlock A Bulging Annuity Market?
If Congress is able to pass any major legislation this year, a retirement security package is as good of a bet as any.
The impact on future annuity sales cannot be overstated.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act, which passed the House in May and awaited Senate action as of press deadline, includes a provision that would make it easier for companies to include annuities in retirement plans.
And that is a very big deal. Although companies are allowed to include annuities in 401(k) plans now, just 9% do, according to the Plan Sponsor Council of America. The reason is liability concerns in the event the annuity provider fails to deliver the goods.
The SECURE Act aims to eliminate that liability. Unsurprisingly, financial services trade associations are enthusiastic about the legislation.
“Americans face a retirement crisis of too little savings amplified by existing barriers that discourage and hamper the ability of small employers to offer a workplace retirement plan,” said Wayne Chopus, president and CEO of the Insured Retirement Institute.
Among other things, the SECURE Act also requires retirement plans to provide participating workers with an illustration of how much monthly income a retirement savings account might deliver. Additionally, the bill raises the age to begin required minimum distributions from retirement accounts from 70½ to 72.
Annuity sales are already rebounding in a big way, with 2019 quarterly sales showing increases as high as 40% in some product lines. After spending the last few years fighting against tougher federal regulation, many industry executives are happy to see Congress produce a change they can support.
The statistics say annuities are needed and, once consumers understand them, popular products. An average man reaching age 65 can expect to live 19 more years, according to the Social Security Administration. Women can expect to live another 21.5.
“Improving opportunities for workers to save, extending more access to lifetime income options and provide information to help savers make more-informed decisions about their finances, will boost Americans’ retirement confidence to help ensure they do not outlive their savings and can enjoy a secure and dignified retirement,” Chopus said.
The SECURE Act is one of the rare legislative efforts that enjoys broad bipartisan support. Still, this Congress is known for its inability to work together on even the most innocuous items.
Key Provisions of the SECURE Act of 2019
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More time in IRAs and 401(k)s.
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The bill would push back the age for required minimum distributions (RMDs) from 70 1/2 to 72 years old.
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Grant part-time workers benefits. Long-term part-time employees would be able to participate in their company’s 401(k) plans.
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Boost small-business 401(k)s.
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Small businesses could band together in group plans.
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Annuity adoptions. Would allow employer-sponsored 401(k) plans to add annuities as investment options on the menu.
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529 plans. 529 plans would be expanded to pay for expenses related to an apprenticeship or to pay back as much as $10,000 in student loans.
Not All Dems Embrace M4A
Of the 25 Democratic candidates seeking their party’s nomination for president, only three so far want to abolish private health insurance in favor of a single-payer, Medicare for All program. Other candidates would like to offer a public option to Americans who have no access to health insurance or who are dissatisfied with their current insurance options.
Despite their differences, however, Democratic candidates agree that they want all Americans to have health insurance, or what they call “universal coverage.” But they see many paths to get to that universal coverage.
The televised debates among the Democratic candidates in June brought home the differences among these hopefuls when it comes to health care.
Sen. Bernie Sanders, I-Vt.; Sen. Elizabeth Warren, D-Mass., and New York City Mayor Bill DeBlasio want to get rid of private health insurance and establish Medicare for All. Sanders would take it a bit further in the Medicare for All bill he sponsored earlier this year, and eliminate all out-of-pocket expenses for everything from primary care to long-term care.
Sen. Kamala Harris, D-Calif., is a sponsor of Sanders’ bill, but said following the June debate that although she wants to see Medicare for All become reality, she is open for leaving some kind of private insurance in place or moving incrementally toward single-payer
Some candidates say they want to see Medicare for All, but realize it could take a long time to get to that point. In the meantime, they favor giving consumers a choice between private health plans and a government-run option while lawmakers work toward a single-payer system.
They have voiced their support for everything from an optional Medicare buy-in nationwide, a government-run public option to compete with private insurers and allowing states to open Medicaid to all residents.
Candidates who fall into this camp include Sen. Cory Booker, D-N.J.; South Bend Mayor Pete Buttigieg, Andrew Yang, Rep. Tulsi Gabbard, D-Hawaii; Sen. Kirstin Gillibrand, D-N.Y.; Rep. Tim Ryan, D-Ohio, Rep., and author Marianne Williamson.
Expanded Coverage, But Not M4A
Some candidates are rejecting Medicare for All in favor of building on the Affordable Care Act. Their objections to a government-run single-payer plan range from not wanting to move consumers away from their current plans to their opposition to the potential cost of a government-run plan.
Former Vice President Joe Biden said he not only wants to build on the health care structure that already is in place, but is “against anyone who opposes Obamacare.”
Others want to give consumers a choice between private health plans and a government-run option.
Sen. Amy Klobuchar, D-Minn., said she wants to keep both private health plans along with a government-run option, something that originally was part of the ACA. “I’m concerned about kicking half of Americans off their current health plans over the next four years,” she said.
Former Rep. Beto O’Rourke said his goal is to get everyone covered through guaranteed universal health care while preserving consumer choice and keeping private insurance.
Others who fall into the anti-M4A camp include Sen. Michael Bennet, D-Colo.; Montana Gov. Steve Bullock; Rep. John Delaney, D-Md.; former Colorado Gov. John Hickenlooper; Washington Gov. Jay Inslee and Rep. Seth Moulton, D-Mass.
NAIC Summer Meeting
There will be a lot on the line when the National Association of Insurance Commissioners convenes for their annual meeting Aug. 2 in New York City.
For starters, the Annuity Suitability Working Group meets Aug. 3 to further work on its annuity sales model law. The group scheduled two 90-minute conference calls in late-July, although sources downplayed the prospects for a final rule by the summer meeting.
The group shifted gears in June, incorporating a draft rule authored by Iowa Insurance Commissioner Doug Ommen. The draft articulates a best interest standard through the following four obligations: care, disclosure, conflict of interest and documentation.
The goal with the new draft is to be consistent with the Regulation Best Interest rule put forth by the Securities and Exchange Commission, Ommen has said.
Also, two other potential rules changes are likely to be raised during the Life Insurance and Annuities Committee meeting Aug. 4.
The first is a proposal to double the time indexes must be in existence to be used in annuity illustrations from 10 to 20 years. The Annuity Disclosure Working Group is concerned that consumers are being misled by unrealistic indexed annuity illustrations.
The second is a long-delayed “policy overview” summary to accompany life insurance sales. The Life Insurance Illustration Issues working group is down to the fine details of its policy overview charge.
NAIC model laws must be adopted by the states before the rules apply to agents.