New York Investigating Sales of Annuities to 403(b)s
October 9, 2019 by Rebecca Moore
There have been several reports, starting with a Wall Street Journal article, announcing that the New York State Department of Financial Services is planning to investigate sales of annuities in the 403(b) retirement plan market.
403(b) plans were limited to investing in annuities until 1974 when the Employee Retirement Income Security Act (ERISA) allowed for investing in custodial accounts, permitting the plans to use mutual funds as investments. IRS regulations passed in 2007, requiring more plan sponsor involvement in their plans, led many 403(b) plan sponsors to move to a new model, reducing the number of vendors (or recordkeepers) used by the plan and stopping new investments in annuities. However, annuities still exist in the plans by legacy vendors since they are individually owned and require plan participant direction to move funds and often participants are charged surrender fees. The market segment that still most uses annuities for plan participants is the K-12 403(b) plan market.