Can Participants Access Annuities if They Are Not Offered by the Plan?

Q: I read with great interest your Ask the Experts column on the difference between investment in an annuity and an annuity distribution from a 403(b) plan. We are a relatively new church plan sponsor that does not offer annuities at all in our 403(b) plan, either as investment options or as a form of distribution. Since we do not offer annuities in-plan, can our participants still avail themselves of an annuity option in retirement if they wish? Or are they out of luck?

Kimberly Boberg, Taylor Costanzo, Kelly Geloneck and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: Your plan participants can absolutely avail themselves of an annuity option in retirement, but instead of purchasing that annuity in the plan, they would purchase an annuity outside of the plan. There is a strong retail market for annuities, and participants will generally have a variety of options from which to choose. Though such retail annuities may be more expensive than an annuity purchased in-plan due to a plan’s collective purchasing power, the annuity might be more easily tailored to the individual needs of a participant.

There are generally two ways of purchasing an annuity outside of the plan: by rolling over an eligible rollover distribution to an IRA or other retirement plan that offers annuities as an investment option, or by taking a plan distribution and using the proceeds from that distribution to purchase an annuity benefit. Since annuities can be complicated, and not everyone is a good candidate for an annuity, the Experts urge anyone considering an annuity option to discuss the issue with a financial adviser well-versed in such vehicles.  

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.

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