Data and Research May 3, 2022

Annuities Shine in Rocky Market Environment

Both FIAs and fixed-rate deferred products benefited from the significant interest rate increases in the first quarter, according to new data published by the Secure Retirement Institute.

Reported by

The Secure Retirement Institute has published the results of its first-quarter U.S. individual annuity sales survey, finding total annuity sales increased 4% to $63.6 billion.

Todd Giesing, assistant vice president, SRI annuity research, points out that first-quarter annuity sales tend to be a bit slower compared with later quarters. Early in 2022, this trend held, he explains, as annuity sales in January and February were a bit sluggish. This came after a banner year for annuity sales in 2021, which saw $254.8 billion in total sales for a 16% increase over 2020, and represented the highest annual annuity sales since 2008 and the third highest sales recorded in history.

Get more!  Sign up for PLANSPONSOR newsletters.

“Annuity sales in March then climbed to record-high levels,” Giesing notes. “Rising interest rates and increased market volatility shifted the product mix this quarter, with fixed annuity products driving the overall growth.”

According to the SRI data, total fixed annuity sales reached $35.2 billion, up 14% over the first quarter of 2021. Double-digit growth for fixed-indexed annuities and fixed-rate deferred annuities drove the overall fixed annuity sales to pre-pandemic levels.

Fixed-indexed annuity sales were $16.3 billion, or 21% higher than the prior year, while fixed-rate deferred annuity sales increased 10% in the first quarter, year-over-year, to reach $16 billion.

“Both FIAs and fixed-rate deferred products benefited from the significant interest rate increases in the first quarter,” said Giesing. “Coupled with a nearly 5% equity market decline, investors sought out principal protection and steady growth, which these products offer.”

SRI’s data shows traditional variable annuity sales were $19.1 billion in the first quarter, down 8% year-over-year. Registered index-linked annuity sales were $9.3 billion. While this figure is 2% higher than the first quarter of 2021, SRI’s data shows, it also reflects a 10% drop from the prior quarter.

“Market conditions in the first quarter have made FIAs more attractive than RILAs,” Giesing says. “As a result, the remarkable growth RILAs experienced over the past three years has leveled off.”

Both variable and fixed annuities can work within the workplace retirement planning context, experts agree, but it depends on a given plan’s objectives. For example, fixed annuities may provide for more predictability in growth and projected future income, along with a potential for lower fees. However, they may not offer the upside potential that a variable annuity could offer, which could be an important consideration for a given plan.

According to the latest SRI data, immediate income annuity sales were $1.5 billion in the first quarter, level with the first quarter of 2021, while deferred income annuity sales fell 18% to $300 million.

“We finally are beginning to see payout rate increases for income annuities as interest rates improve,” Giesing says. “However, because the Fed has signaled additional rate hikes later this year, we expect investors to wait to lock in rates, so sales will likely remain muted in the second and third quarters.”

Ask the Experts May 3, 2022

Are Distributions From a 403(b) Subject to the WEP Provision?

Experts from Groom Law Group and CAPTRUST answer questions concerning retirement plan administration and regulations.

Reported by

“Are distributions from a 403(b) plan subject to the Windfall Elimination Provision?”

The answer is—it depends! The Windfall Elimination Provision is a Social Security provision that is designed to keep individuals from “double dipping,” or receiving both a pension from a job where they did not pay Social Security taxes (e.g., positions at certain public sector employers) and a Social Security benefit in connection with a job where they did pay Social Security taxes. Under the WEP, payments from a “pension” at the job where an individual did not pay Social Security taxes may reduce the Social Security benefit from a job where the individual did pay Social Security taxes.

Get more!  Sign up for PLANSPONSOR newsletters.

 

Now, when most people think about a pension, they typically think of a traditional defined benefit pension plan, such as that offered by a state retirement system. However, the Social Security Program Operations Manual defines a pension more broadly for WEP purposes, as follows:

 

A. Determining If Payments Are a Pension

3. Payment from primary retirement plans and optional savings plans

a. Payments received from defined contribution plans (e.g., 401(k), 403(b) or 457 plans) based on non-covered employment are considered a pension subject to WEP regardless of the source of contributions (employer only, employee only or a combination of both), if the plan is the primary retirement plan. If the plan is a supplemental plan, the payments   are subject to WEP when the plan payments contain employer or both employer and   employee contributions.

 

As such, distributions from 403(b) plans are generally subject to the WEP. However, it would appear that the only 403(b) distributions that would not be considered to be from a pension plan for WEP purposes would be distributions that consist solely of employee contributions from a 403(b) plan that is supplemental to the primary retirement plan of the employer.

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Amy.Resnick@issgovernance.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.

 

«