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BlackRock Adding Annuities to 401(k) Plans

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What You Need to Know

  • Annuities are being added as an option in the firm's target date retirement offerings in 401(k) plans.
  • The new LifePath Paycheck product embeds annuity contracts issued by Equitable and Brighthouse Financial.
  • Once plan participants turn 59-1/2 they can also purchase their own fixed annuity to provide income for life.

BlackRock, the world’s biggest asset manager with more than $9 trillion in assets, is moving into annuities.

The firm has a new target date retirement product for 401(k) plans that will provide workers a stream of payments through their lives. Called the LifePath Paycheck solution, it embeds annuity contracts issued by Equitable and Brighthouse Financial, according to BlackRock.

Once participants reach age 59-½, they will have the option to purchase a fixed individual  retirement annuity to provide a guaranteed stream of income for life. Participants will be able to use 30% of their 401(k) balance for in the product, according a report in The Wall Street Journal.

Five employers have already signed up for the new product, including the Tennessee Valley Authority, which has about $7.5 billion in target date investments in its retirement plans.

BlackRock expects that over 120,000 U.S.-based 401(k) plan participants will be able to access the annuity option starting in 2022, when initial plan adoptions are anticipated.

“As Americans are living longer and healthier lives, their risk of outliving their savings is accelerating the ‘silent crisis’ of financial insecurity in retirement,” said Mark McCombe, chief client officer at BlackRock, in a statement. “By addressing spending and income in retirement, we’re working alongside our clients and partners to help more people address these challenges.”

BlackRock’s new series of target-date funds will cost each employee participant about 0.1% for every $10,000 in the account. The fee will rise once the product starts to invest in group annuity contracts and has a maximum of 0.16%, according to the Journal.

These fees are less than the average 0.34% fee that investors pay yearly for target date funds and the 1% yearly fee they pay for fixed annuities, according to the Morningstar data cited by the paper, which added that BlackRock said there won’t be commissions, sales load or distribution fees for the annuities.

(Image: Bloomberg)