In an effort to assist the middle-class save for retirement, President Obama may have also given a boost to the annuities sector.

On Monday, Obama proposed a series of measures, including expanding existing tax credits for child care and retirement savings, and provide financial relief for families caring for children and the elderly.

The White House also plans to promote “the availability of annuities and other forms of guaranteed lifetime income, which transform savings into guaranteed future income, reducing the risks that retirees will outlive their savings or that their retirees’ living standards will be eroded by investment losses or inflation.”

Analysts applauded the measure and said it could significantly increase annuity assets this year and beyond. Carmen Effron of C.F. Effron Co. LLC in Weston, Conn., called this a “stamp of approval” for the annuity industry. “Any time you get the government behind a program it is an enormous boost for business,” she said. “Think about what happened with [individual retirement accounts] and [health savings accounts] when the government supported them. Any time the government takes an interest in a financial product there is an influx of information and publicity. People are going to be talking annuities and this creates a tremendous opportunities for individual annuity carriers.”

Over the past two years, Cathy Weatherford, the president and chief executive officer of the Insured Retirement Institute has been advocating this type of measure. The “value of a guarantee has never been greater,” she said explaining her position. “The dependable, guaranteed stream of retirement income that annuities provide to people later in life is being noticed at the highest levels,” she said. “We are pleased that President Obama and Vice President Biden today called for increasing the awareness of guaranteed lifetime income, by ‘promoting the availability of annuities.’”

Weatherford said her group is looking forward to working with the Obama administration “to help spotlight the vital role annuities can play in ensuring that all Americans have a comprehensive retirement plan to guarantee income for their golden years.”

Meanwhile, Effron said it is critical to find out details of how the government plans to promote annuities. At the very least, she said she expects they will create educational material to inform individuals about the differences between fixed and variable annuities. “The reality is, it would really surprise me if the government pinpointed particular companies to buy from,” she said. “But, they might—like they did with HSAs— put together a ‘preferred’ group of insurance companies that meet their standards.”

Rus Prince of Prince & Associates said that Obama and legislators will need to modify the tax structure to make annuities more attractive.

“Right now a lot of these comments are simplistic and lacking details,” he said. “The devil is in the details. … Just saying these products are good is not going to make them more appealing to anyone. ... Until I get more details, I guess I will just say that this is cute."

The new support for annuities could boost sales through banks and other channels. Income earned from the sale of annuities at bank holding companies rose 2.5% to $2 billion in the first three quarters of last year from the same period a year earlier. According to the Michael White-ABIA Bank Annuity Fee Income Report, which was released last week, third-quarter annuity commissions rose 12.9% to $669.8 million from the previous quarter.

The report, which is sponsored by the American Bankers Insurance Association, measures and benchmarks the banking industry’s performance in generating annuity fee income. It is based on data from all 7,319 commercial and FDIC-supervised banks and 922 large top-tier bank holding companies operating on Sept. 30.

Another proposal announced by the Obama administration Monday would encourage increased retirement saving by the middle class by expanding the "Saver's Credit" to families earning up to $85,000. Previously, it was limited to income of $53,000 for married couples filing jointly.
Eligible taxpayers now can take a credit of up to $1,000, or $2,000 for joint filers, for contributions to a qualified IRA, 401(k) and certain other retirement plans.

The administration said that it also plans to match 50% of he first $1,000 of contributions of families with less than $65,000 in annual income. The White House also wants to enhance transparency in 401(k) plans in an effort to make individual investors more aware of retirement plan fees and investment performance by requiring that plan documents be made clearer and easier to understand. One proposal would require that plan documents report all fees charged against a worker's 401(k) prominently on quarterly statements. The proposals would require that plan participants receive information on risk, return and investment objectives before they contribute to a plan.

Register or login for access to this item and much more

All Financial Planning content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access