The impact of the SECURE Act on annuities and retirement plans has been swift and strong. Implementation of the SECURE Act in January 2020 brought a flurry of annuity product launches. Meanwhile, investment risk driven by the global pandemic and persistent low interest rates have spread uncertainty over future earnings for annuity issuers. Industry professionals predict annuities to rebound in 2021. And Annuity Monitor expects the response to the legislation to further take shape with more product offerings and customer incentives.

The industry jumps off with a robust response to the SECURE Act in 2020

Passage of the original legislation in December 2019 was met with broad support from the annuity industry. Provisions had a liberalizing effect for issuers and customers alike. Prior to the fallout from the COVID-19 pandemic, most institutions and industry professionals anticipated a boost in annuity sales driven by the implementation of the new law. A wide range of industry actors weighed in publicly following the bill’s passing with messages of celebration, educational materials for customers and announcements of new product offerings.

Seven different financial institutions monitored by Corporate Insight were highlighted in the latest Annual Annuity Monitor Awards Report for launching new annuity products throughout 2020:

  • Lincoln Financial stood out as the first firm to launch new annuity products in direct response to the passage of the SECURE Act
  • Nationwide also highlighted the new law in an announcement of its Principal Protection annuity product launch

SECURE Act on annuities and retirement

The SECURE Act allows annuity issuers to better access the employee market segment. The segment previously had been largely unreachable due to the high level of legal liability risk for employers. This law effectively made it easier and more attractive for employers to include annuities in their 401(k) offerings. It included many important changes for the retirement industry. But the safe harbor provision provides the greatest boost, as it relaxes the fiduciary responsibility of plan sponsors when choosing an annuity provider. There are other significant impacts of the SECURE Act on annuities and retirement:

  • The lifetime income disclosure rule makes it compulsory for employers to educate their employees on how much they would receive in monthly lifetime income after annuitizing their retirement savings
  • The required minimum distribution (RMD) age raised from 70½ to 72 years
  • The elimination of Stretch IRAs for most types of beneficiaries means most inherited retirement account beneficiaries will need to withdraw taxable assets within 10 years of the death of the policy owner, effectively eliminating this stream of lifetime income

The response to the impact of the SECURE Act on annuities and retirement plans continues

Passage of the SECURE Act even prompted the initial entry of at least one firm into the annuity industry. In December 2020, Annexus Retirement Solutions announced the opening of a new division dedicated to annuity-structured retirement income products. A senior advisor at the firm, Charles Millard, credited the safe harbor provision included in the SECURE Act for making it easier to include guaranteed lifetime income in employer-sponsored retirement plan offerings.

A year on from the launch of the firm’s annuities division, Annexus has now partnered with Nationwide to roll out Lifetime Income Builder. In the announcement of the product’s rollout, the firm cited annuity provisions under the SECURE Act and increased consumer demand for annuities as being instrumental in bringing this product to market. AmeriLife followed this up by announcing its own partnership with Nationwide to introduce an indexed annuity with two choices for lifetime income guarantee features.

As the SECURE Act made it easier and more attractive for customers to purchase lifetime income, firms have continued to roll out these products. AIG, BlackRock, Pacific Life and Wells Fargo make up just a few of the firms to offer new lifetime income products since the bill’s passing.

Other examples point to ways in which the annuity industry has already adapted to the implementation of the SECURE Act, like:

  • ShareBuilder 401k’s discount incentive for employers to set up a safe harbor 401(k) prior to the October 1, 2020 deadline
  • MetLife’s numerous press releases announcing its provision of lifetime income annuity options for various companies

Is a SECURE Act 2.0 on the horizon?

In terms of the regulatory outlook for the industry, developments regarding a potential SECURE Act 2.0 will be crucial. It took less than a year after passage of the initial SECURE Act for this follow-up bill to be introduced in the U.S. House of Representatives, and it has now been referred to the House Ways & Means Committee. Broadly, the new law would further incentivize employers to expand access to retirement plans for their employees. Enacting this legislation would see regulations of annuities relaxed even further. In addition to other provisions, the SECURE Act 2.0 would push the RMD age for retirement accounts up even more, to 75, allow for insurers to more easily offer ETF-linked subaccounts in annuity products and require automatic participant enrollment in new defined contribution plans.

In recent years, the ongoing annuity marketing trend of offering lifetime income in retirement has been apparent. With this trend set to continue alongside other industry adaptations to the SECURE Act, early signs indicate that the landscape of product offerings across the annuity industry will continue to grow in the coming year and beyond.

Jacob Littman

Jacob Littman is a Senior Analyst on CI's life insurance and annuities team.