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Fidelity to Offer Annuity Access to 401(k) Participants

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What You Need to Know

  • The new product will give 401(k) and 403(b) participants the ability to annuitize their retirement savings.
  • Growing interest in guaranteed income in retirement was a key reason that Fidelity will offer this product.
  • The Secure Act has reduced the risk for employers and made it easier for them to provide annuities as a retirement plan option.

Fidelity Investments, which has $11.1 trillion in assets under administration, announced Thursday that it was launching Guaranteed Income Direct in 2022, giving 401(k) and 403(b) plan participants the ability to annuitize their retirement savings.

The company says it has 8 million workers age 50 to 64 on its savings platform, noting that the growing interest in these “guaranteed income” products was a key reason for offering this new option.

Workers in the Fidelity network will be able to buy an immediate income annuity, with institutional pricing and offered by an insurer of their choice, via Fidelity’s platform. Participants can select the product and the amount they want to convert on an individual basis. Any money not converted can remain in the workplace savings plan, the company said.

The annuity selections are subject to the claims paying ability of the issuing insurance company.

“Shifting from saving for retirement to living in retirement is one of the biggest transitions a person will make in their lifetime, and one of the top challenges facing individuals during this transition is how to ensure that they have enough predictable income to cover their essential expenses,” Keri Dogan, senior vice president, retirement solutions at Fidelity, said in a statement.

“Our new Guaranteed Income Direct product provides employees with a simplified option to use their retirement savings plan assets to create their own personal pension and provide them with a steady, reliable stream of income to help cover their expenses in retirement,” Dogan added.

Nearly 80% of workers are interested in putting some of their retirement savings into an investment option that would guarantee them monthly income when they retire and help ensure they don’t outlive their savings, Fidelity said in the statement, citing the Employee Benefit Research Institute’s 2021 Retirement Confidence Survey.

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Also, a growing number of employers, according to a 2017 Fidelity survey, are more comfortable having workers keep savings within the company’s savings plan when they retire. Further, the recent passage of the Setting Every Community Up for Retirement Enhancement Act has reduced the fiduciary risk for employers and made it easier for them to provide annuities as a retirement plan distribution option, according to Fidelity.

Annuity Sales Perspective

Overall annuities sales through the third quarter increased 19% over the same period in 2020, to $191.4 billion. Total annuity sales in the third quarter were $62.3 billion, up 12% from the same period in 2020, according to to the Secure Retirement Institute U.S. Individual Annuity Sales Survey.

Total variable annuity sales were $30.6 billion in the third quarter, up 28% from the prior year. Through the third quarter, total sales were $93.3 billion, 31% higher than the previous year.

And though traditional variable annuity sales were up 21% in their third quarter over last year, and up 17% year to date, the big story was registered index-linked annuities (RILAs), which are structured variable products that use index options to provide both upside potential and downside protection.

Those products rose 47% in sales to $9.2 billion vs. the third quarter 2020. Through the third quarter, RILA sales were up 81% vs. the same period last year, with $28.4 billion in sales.

Total fixed annuity sales were up 10% through the third quarter versus the same time last year, while fixed indexed annuities were up 14%, to $47.1 billion, through the third quarter of 2021.