New Annexus Division to Develop Annuity Products for 401(k)s


While Annexus is not yet ready to discuss specific products, it has filed six patents to bring retirement income products into the 401(k) space.

By Diana Britton
This article was originally published by  Wealth Management

Scottsdale, Ariz.-based Annexus, which designs retirement income products, has launched a new division dedicated to building guaranteed retirement income products using annuity structures for defined contribution plans. While the firm’s not yet ready to discuss specific products, it has filed six patents to bring such products into the 401(k) space. Annexus expects to announce the first new product in early 2021.

In early January 2019, Blackstone acquired a minority stake in Annexus, and part of that capital has helped build out the new division, called Annexus Retirement Solutions.

Up to now, Annexus has focused primarily on creating products for individual investors; this new unit will be focused solely on institutional investors, including plan sponsors, which many advisors have as clients.

“One of the big failings of a 401(k) plan is it’s self-funded and has to be a primary vehicle to fund most Americans’ retirement for life,” said David Lau, founder and CEO of DPL Financial Partners, an insurance network for registered investment advisors. “Having a bit of guaranteed income or an option for guaranteed lifetime income in such a plan, I think, is really important for most Americans. The traditional even methodology of funding retirement spending these days, of just migrating the portfolio from stocks to bonds to de-risk and create income in retirement, doesn’t work anymore because bond yields are so low.”

Charles Millard, senior advisor at Annexus Retirement Solutions, says the SECURE Act, enacted in early 2020, has made it easier for plan sponsors to include some form of guaranteed lifetime income in their offering. The legislation included a safe harbor for employers when choosing a group annuity within a defined contribution plan, shifting the liability to the insurance company.

More recently, a House of Representatives committee introduced the Securing a Strong Retirement Act, which builds on the SECURE Act, and opens up DC plans to annuities even further.

“Clearly the world is recognizing that there’s a serious need for guaranteed lifetime income as people live longer, and the regulatory environment is encouraging plan sponsors to do this,” Millard said.

Historically, adoption of annuities in 401(k) plans has been low; Dave Paulsen, senior advisor at Annexus Retirement Solutions, says that’s primarily because the products have not been liquid, portable and efficient.

“The solutions to date have been solved through a proprietary lens,” he said. “We’ve been trying to stick square pegs in round holes by taking products that exist in their current form and just trying to bolt them onto a defined contribution or 401(k) plan.

“People need solutions that are liquid, that are portable, and where they don’t give up control of their assets, and that are simple for the plan sponsor and simple for the participant,” Paulsen added.

Any sort of retirement income product inside of a 401(k) plan should facilitate small contributions, DPL’s Lau said. Annuities aren’t really designed to do that, particularly with fixed annuities, which facilitate lump sums and don’t take continual investments. Products that enable ongoing, smaller contributions into the account would be ideal.

A product should also be low-cost, Lau argues.

“One of the big benefits of annuities is tax deferral, and obviously within a 401(k) plan, you’ve already got it,” he said. “So there’s no need to double-pay for tax-deferral. You really have to have some low-cost, guaranteed income options in there.”

Ben Thomason, an executive vice president at Vestwell, said he would imagine product designers in this space are putting all their strength and effort to making a product that’s flexible. For a product to be successful and get traction, it’s also got to be compelling.

“I think you have to design a product with enough flair and creativity that people are going to actually engage it,” Thomason said. “The second part of it is, you have to build a digital narrative and the proper communication, education and resource there to explain it to people.”

The products that come out of the Annexus division will be embedded into existing target date funds, which have wide adoption in the retirement plan space and require little decision-making on the part of the plan participant.

“We’re trying to make it as simple for them as possible and make this a mainstream option as part of their overall in-plan investment,” Paulsen said.

Annexus plans to collaborate with major stakeholders in the space, including brand name, “fee-appropriate” asset management firms, insurance companies and record-keepers who can put the product on their platforms. Paulsen declined to name who those partners will be.

In the past, Annexus has worked with companies, including Nationwide, Athene, AIG, Transamerica and Securian.

“We know that the need for lifetime income—what I call the income crisis in America—isn’t going to go away,” Paulsen said.

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