Test Your ‘401(k) Annuity’ Math Skills
October 8, 2024 by Kerry Pechter
Actuaries and math puzzle-solvers, here’s a question. Several novel target date funds (TDFs) have come to market in which deferred annuities are embedded as one of the investment sleeves. These TDFs are intended to be distributed through 401(k) plans as qualified default investment alternatives (QDIAs) for auto-enrolled participants.
Here’s how they work: When participants who are auto-invested in the TDFs reach age 45 or 50, increasing percentages of their contributions begin to spill over into the deferred annuity sleeve. At age ~65 or so, the participant must decide whether or not to convert the amount in the annuity sleeve to guaranteed lifetime income.
Click HERE to read the full article via RIJ
Wink’s Moore on the Market: 401(k) annuities…
It seems as if every one of the “big guys” in annuities wants one.
However, Kerry Pechter of Retirement Income Journal has some excellent points.
Like-
“Is changing the crediting rate each year or month tantamount to changing the product fee?”
How about-
“Some people have worried that participants who have paid the annual 100 bps for 15 years but never opt into the annual lifetime income stream may feel robbed of the fee. One witness at a meeting…this week suggested that those participants might be like people who buy car insurance but never have accidents.”
Good stuff in here. – sjm