The idea behind the recently introduced Secure Act is to protect 401(k) providers from financial liability when they diversify their investments in annuities, in case the annuity provider is either found to be fraudulent or goes out of business for whatever reason. The lack of protection is why 401(k) typically have steered clear of annuities in the past.
While there are plenty of reasons the Secure Act is a positive thing, there are certainly lawmakers and industry leaders out there who don’t think the Act is quite up to snuff. Some believe it could potentially be more intended to protect the insurance industry than it is beneficial to the people enrolled
One such critic of the Secure Act is Knoxville News Sentinel writer, David Moon. His argument is that the Secure Act’s biggest supporters are also some of the biggest receivers of donations from the insurance industry.
As Moon argued, in a recent article, that he sees it as a piece of insurance company legislation jokingly masquerading as something to help the little guy when in reality it does the exact opposite.
On the opposite end is the CEO of NAFA (or the National Association for Fixed Annuities) Chuck DiVencenzo. His argument is that Moon’s ascertains are misguided and ill-informed. While the bill isn’t forcing 401(k) providers to purchase annuities, it does require that employers make sure that once a year their employees are offered a chance at education as to what benefits annuities could provide and how they could help them stay financially secure throughout retirement.
NAFA and other proponents of annuities have spent many years approaching Congress, looking for legislation such as the Secure Act, as well as trying to combat a lot of detractors (such as Moon) who use their platforms to decry annuities and complicated investments that often misrepresent the types of hidden fees you’ll encounter when investing in them.
The problem is a general ignorance from the public as to the various types of annuities offered and the combinations therein. DiVencenzo further elucidates: “They can be complicated, as they have components that mitigate risks through insurance features like a death benefit and lifetime payouts as well as annuities that are registered as investment products.” DiVencenzo later went on to explain how those who are critics of annuities will generalize all annuities as being equal and then highlight the worst features of them all. But DiVencenzo feels that education on annuities is the right path and making it easier to put your money into such investments through a 401(k) can only benefit most retirees. “People in the 50-plus age bracket understand the need for products that guarantee a lifetime income and secure a stable retirement income,” he said.
While there are always places for things to be improved upon, the Secure Act at least is structured to help educate people on the importance of having a guaranteed income beyond the basics like Social Security for the rest of their retirement years.