Two values particularly mark this year’s 2014 MetLife Qualified Retirement Plan Barometer (QRPB) survey of Fortune 1000 retirement plan sponsors: income and simplicity.
The survey found that 57 percent of defined contribution (DC) plan sponsors that don’t include an income annuity are taking a “serious look” at lifetime income options, 34 percent have explored offering such options and 11 percent have conducted due diligence regarding companies that offer lifetime income options.
“DC-only plans sponsors are taking a serious look at lifetime income,” said David DeGeorge, vice president of life and income funding solutions for MetLife.
A new plan sponsor survey offers insights into the issues regarding retirement income adoption by workplace retirement plans. Service providers may find it instructive in anticipating and meeting plan needs.
More than a third of 212 plan sponsor respondents (37%) agree that solvency determination (i.e., evaluation of the annuity provider to ensure that its solvency is adequate to make all future payments to the annuitants(s)) is the most pressing issue that still needs to be addressed to ensure a workable safe harbor. According to the MetLife 2016 Lifetime Income Poll, this rises to 47% among those who are extremely or very familiar with the proposed amendments to the safe harbor.
Three-quarters (76%) of respondents say that in determining the adequacy of the solvency of a potential annuity provider for their defined contribution plan, they would prefer to be permitted to rely on certifications from the annuity provider based on the regulatory process carried out by a state insurance commissioner, rather than to conduct the solvency due diligence process themselves as part of their regular due diligence process for plan providers.
MetLife Inc. said its dual roles of offering retirement products and advising customers are threatened by a U.S. Labor Department proposal that was designed to make sure savers’ interests are put first.
“Without substantial modifications, the proposal could force companies such as MetLife to choose between manufacturing individual annuities and distributing,” Chief Executive Officer Steve Kandarian said on a conference call Thursday.
President Barack Obama’s administration says new rules are needed so that savers won’t be pushed into high-fee products by brokers who make commissions from banks or insurers. Kandarian previously likened the plan to forcing a Chevrolet dealership to guide potential customers to Ford vehicles.
“The proposed rule effectively makes it a conflict of interest to sell your own products,” Kandarian said Thursday. “It is unclear what public policy goal is served by making it more difficult for companies to provide guaranteed retirement income to consumers.”
Other providers of retirement products have also faulted the proposal, with Stifel Financial Corp. CEO Ron Kruszewski calling it “almost unworkable” and Voya Financial Inc. saying it would jeopardize retirement income by by making it harder to get advice.
Middle Class
Kandarian, 63, said the rule would punish most savers. The only exception, he said, would be the wealthy because their holdings generate enough fees to make it worthwhile to provide them investment advice.
“Assets of middle-income investors are unlikely to generate fees sufficient to offset” the higher costs of offering advice under the proposal, he said. “Consequently, those consumers could find it difficult, if not impossible, to receive face-to-face investment advice.”
MetLife slipped 1.9 percent to $56.13 at 12:54 p.m. in New York trading. The company, which is the largest U.S. life insurer, has advanced 3.8 percent this year, compared with the 5.2 percent gain of the Standard & Poor’s 500 Insurance Index.
The insurer’s executives were asked on the call whether rule changes would push the company to change pay tied to retirement products.
“We have already changed our compensation policies a couple of years ago to, I would say, equalize comp between proprietary and non-proprietary annuities for our producers,” said William Wheeler, head of the Americas region. “That said, we might still have to make other compensation adjustments to our producers” based on the eventual rules.