Annuities in 401k Plans

Many employees cringe when they hear the terms “variable annuity” and “401k plan” in the same sentence. Variable annuities often have high fees and lock-in periods. However, 401k annuities are not your typical variable annuity products. They are specifically designed to act as an investment option within a 401k plan, and thus, there is no lock in period.More and more insurance companies are coming out with annuity options for 401k plans that guarantee income for participants after they retire. Investors are guaranteed to get back what they contribute, and in many states are given the option to step up their guaranteed income amount each year.

One of the issues with buying an annuity at retirement is that employees can’t predict what the interest rate will be at that time, and thus may not get the returns they want. But with some 401k annuities, employees can buy the product at a time when they believe that interest rates are at a peak and set that rate for the term of the contract.

401k annuities can be particularly attractive for employers that want to retain and attract older workers, a more common trend as many anticipate a talent shortage.

Experts agree that the concern around having enough for retirement will grow in coming years, but many are skeptical about whether younger employees will have high demand for 401k annuity products anytime soon.