Any annuity definition should recognize that complexity and consumer confusion have hampered these financial products. Although they may help with retirement planning, annuities are notoriously opaque, even as they are growing in popularity. Thanks to the SECURE Act of 2019, sponsors of 401(k) plans can offer annuities to participating employees. The idea is to provide a way for savers to get access to guaranteed income when they retire. But a funny thing happened along the way. While annuities can provide a reliable income stream, some plan sponsors are reluctant to offer them. A big reason: a lack of annuity fluency.
A recent survey of plan sponsors by TIAA found that adding annuities to 401(k) and other defined contribution plans may be slow to take off because of a lack of understanding about how annuities work. Of the plan sponsors offering annuities, only 37% said they could articulate the value and importance of annuities. Meanwhile, among plan sponsors that aren’t adding annuities to their lineup, 43% said a lack of understanding is the primary barrier to adoption.
