Annuities could get boost from small business legislation

Employee Benefit News

By Donna Mitchell
September 29, 2010
The battered annuity industry seemed to have found a powerful ally in President Obama’s administration, when the Middle Class Task Force issued a report in January saying the executive branch would work to promote the availability of annuities and other forms of guaranteed income.

Image via WikipediaPart of that promise was fulfilled Monday, after President Obama signed the Small Business Jobs Act into law.

The legislation includes a provision that allows holders of non-qualified annuities to carve out some of the funds from a deferred annuity and buy an immediate annuity contract with those proceeds.
The original deferred annuity will continue to grow and accumulate tax-deferred income. Designated as an offset, it is designed to promote retirement preparedness. …
Small employers
Because of their size, some small business owners are not able to directly offer qualified retirement savings plans. For employees of these companies who happen to own a deferred annuity contract, the new law gives them greater flexibility to save outside of the workplace toward a secure retirement, according to Cathy Weatherford, president and chief executive officer of the Insured Retirement Institute, based in the nation’s capital.
Currently, if an individual wants to pull a portion of money out of his or her single guaranteed annuity and buy a separate contract, that investor would have to cancel the original contract and buy two separate annuities. They would incur a surrender charge beginning at 5% of the invested amount, at least, and ranging to 7% and up, Weatherford explains.
"This is a giant step forward that will allow Americans to have annuities … as they build out their retirement savings strategies going forward," Weatherford says. "It will save money on fees for exchanges or those types of things. It is a way for people to get one more option to continue to grow next egg at time when might need guaranteed lifetime income."
There could be more to come from the current administration, in terms of supporting the annuity industry. In February, the Departments of Labor and Treasury requested information for how to encourage 401(k) plans to offer annuities to their participants, which has gotten many responses from insurance companies and trade groups.

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Donna Mitchell is a senior editor at Financial Planning, a SourceMedia publication.