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Retirement: Annuities Are Coming to Your 401(k) Plan

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Since the passage of the SECURE Act at the end of 2019, adoption of annuities has been slow, due in part to the COVID-19 crisis and the generally sluggish pace of changes in retirement plans. But, it looks like things are picking up. A survey from asset manager TIAA reports that nine out of ten plan sponsors who do not currently offer in-plan annuities are at least somewhat interested, and that three out of four plan sponsors are extremely interested in a target-date fund that allocates a portion of its assets to a life-time income option.

And it looks like BlackRock is talking up the call on the second piece of that survey. Partnering with insurers Equitable and Brighthouse Financial, BlackRock (BLK) has announced a new series to popular LifePath target-date funds dubbed ‘LifePath Paycheck.’ Just like BlackRock’s other target-date products, the new annuity-focused funds will feature a mix of assets – cash, bonds, stocks and real estate – that become more conservative as they hit retirement age.

The kicker for the new LifePath Paycheck funds is that once a saver reaches 59 ½, they have the option to purchase a fixed individual retirement annuity with the fund. This easily converts the savings into an annuity that can guarantee a stream of income for life. BlackRock’s hope is that it is able to use its size and clout to offer cheaper prices for the annuity product, eliminate the hassles of going annuity shopping on an investor’s own and make the process seamless.

And they just may have a hit on their hands. Five firms – including the Tennessee Valley Authority and Auto Parts – have already agreed to use the product in their plans and make it the default option. This instantly gave 100,000 workers, with nearly $7.5 billion in savings, access to annuities in their plans.

Not to be outdone, Capital Group, which manages the super-sized American Funds, recently announced that it had partnered with Nationwide Insurance to create a similar product as well as single stand-alone mutual funds designed to be converted into annuities. Analysts expect fund giants like Fidelity and T. Rowe Price to follow suit.

Click here to learn more about how the SECURE Act could impact annuities.